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7 charitable tax deduction questions answered

A basic guide to the potential tax implications (and advantages) of donating to charity

There's financial incentive for Americans to give generously to charity: when you donate to a 501(c)(3) public charity, including Fidelity Charitable, you are able to take an income tax charitable deduction. The purpose of charitable tax deductions are to reduce your taxable income and your tax bill—and in this case, improving the world while you’re at it.

1. How much do I need to give to charity to make a difference on my taxes?

Charitable contributions can only reduce your tax bill if you choose to itemize your taxes. Generally you'd itemize when the combined total of your anticipated deductions—including charitable gifts—add up to more than the standard deduction. Keep track of your charitable contributions throughout the year, consider any additional applicable deductions. Generally taxpayers use the larger deduction, standard or itemized, when it's time to file taxes.

Standard Deductions for 2017

Filing As Amount
Single$6,350
Head of household$9,350
Married filing jointly$12,700
Married filing separately$6,350
Qualifying widow or widower$12,700
Dependent$1,050-$6,350
Additional standard deduction for blindness or age (65 and older)
Single or head of household
Married filing jointly, married filing separately or qualifying widow or widower
$1,550
$1,250

2. What can I take a tax deduction for?

In order to take a tax deduction for a charitable contribution, you'll need to forgo the standard deduction in favor of itemized deductions. That means you'll list out all of your deductions, expecting that they'll add up to more than the standard deduction.

The most common expenses that qualify are:

  • Mortgage interest
  • State and local tax
  • Charitable giving
  • Medical and dental expenses

3. What's the maximum amount I can claim as a charitable tax deduction on my taxes?

When you donate cash to a public charity, you can generally deduct up to 50% of your adjusted gross income. Provided you've held them for more than a year, appreciated assets including long-term appreciated stocks and property are generally deductible at fair market value, up to 30% of your adjusted gross income. Combining more than one type of asset can be a tax-efficient move to maximize the amount that you can take as a charitable tax deduction.

Learn more about what you can donate

4. What do I need in order to claim a charitable contribution deduction?

Once you've decided to give to charity, consider these steps if you plan to take your charitable deduction:

  • Make sure the non-profit organization is a 501(c)(3) public charity or private foundation.
  • Keep a record of the contribution (usually the tax receipt from the charity).
  • If it's a non-cash donation, in some instances you must obtain a qualified appraisal to substantiate the value of the deduction you're claiming.
  • With your paperwork ready, itemize your deductions and file your tax return.

5. Which tax bracket am I in and how does that impact my deductions?

Federal tax brackets are based on taxable income and filing status. Each taxpayer belongs to a designated tax bracket, but it’s a tiered system. For example, a portion of your income is taxed at 15%, the next portion is taxed at 25%, and so on. This is referred to as the marginal tax rate, meaning the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, the marginal tax rate is the percentage taken from your next dollar of taxable income above a pre-defined income threshold. That means each taxpayer is technically in several income tax brackets, but the term “tax bracket” refers to your top tax rate.

2017 tax brackets (for taxes due April 17, 2018)

Single
Tax Rate

10%

Up to $9,325

15%

$9,326-$37,950

25%

$37,951-$91,900

28%

$91,901-$191,650

33%

$191,651-$416,700

35%

$416,701-$418,400

39.6%

$418,401 or more

Married Filing Joint
Tax Rate

10%

Up to $18,650

15%

$18,651-$75,900

25%

$75,901-$153,100

28%

$153,101-$233,350

33%

$233,351-$416,700

35%

$416,701-$470,700

39.6%

$470,701 or more

Married Filing Separate
Tax Rate

10%

Up to $9,325

15%

$9,326-$37,950

25%

$37,951-$76,550

28%

$76,551-$116,675

33%

$116,676-$208,350

35%

$208,351-$235,350

39.6%

$235,351 or more

Head of Household
Tax Rate

10%

Up to $13,350

15%

$13,351-$50,800

25%

$50,801-$131,200

28%

$131,201-$212,500

33%

$212,501-$416,700

35%

$416,701-$444,550

39.6%

$444,551 or more

The higher your tax bracket, the greater your tax savings as a result of making charitable gifts. For example, if a hypothetical donor in the 39.6% tax bracket makes a donation of $10,000, this person may later qualify for $3,960 in savings at tax time. Compare the same $10,000 gift from someone in the 25% tax bracket who will recognize $2,500 in tax savings.

6. How does the Pease limitation affect my tax deduction?

If you itemize your deductions at tax time and exceed certain income limits — individual taxpayers with an AGI above $261,500 (single filers) and $313,800 (couples filing jointly) — the Pease provision limits the value of the total itemized deductions you can take1.

For those impacted, Pease reduces itemized deductions by 3% of the amount by which the taxpayer's AGI exceeds the income threshold, taking a "haircut" off all itemized deductions, though not to exceed 80% of itemized deductions.

This includes charitable giving as well as every other itemized deduction (e.g., home mortgage interest, state and local tax, and so on).

7. Can I take a Fair Market Value deduction for donating private S-corp or C-corp stocks to charity?

Yes, it's possible to deduct the full fair market value of the contribution if the recipient organization is a public charity. But tactically, the answer depends on whether the charity is able to accept private stock as a gift. Most charitable organizations simply don’t have the resources, expertise or appetite to efficiently accept and liquidate these types of assets, particularly in a time crunch at the end of the year.

However, Fidelity Charitable has a team of in-house specialists who work with donors and their advisors, to facilitate charitable donations of S-corp and private C-corp stock every day (among many other assets). Once you make a donation to Fidelity Charitable and the asset is sold, you’re able to recommend grants to your favorite charities, quickly and easily.

And by donating private stock, you generally do not pay capital gains taxes on Fidelity Charitable's subsequent sale of the stock. There's a second tax benefit as well: you'll generally be able to deduct the full FMV as determined by a qualified appraisal.

Bonus tip:

M&A deals are on the rise globally. Although these transactions are generally favored by shareholders because they can create additional income, they can also produce additional tax liabilities due to the forced recognition of capital gains. Transactions that have already closed and those that may still close this year should trigger end-of-year tax planning conversations between you and your advisor. With a view toward philanthropy, there are strategies that can provide both high-impact charitable giving opportunities and a positive impact on tax deductions.

How Fidelity Charitable can help

Since 1991, we have been a leader in charitable planning and giving solutions, helping donors like you support their favorite charities in smart ways.

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