Few noble causes have the same impact as donating to charities. On top of the satisfaction of knowing your donation will impact a life somewhere, you also get a bonus in terms of tax deductions.

That’s right! The federal government introduced a financial incentive that allows Americans to take charitable tax deductions on taxable income to encourage more donations to worthy causes. If you’ve been donating or are planning to donate in 2022, this post shares tips on maximizing your tax deductions for your charitable donations.

Itemize your Deductions

Tax deductions only apply if you use itemized deductions and not standard deductions. Itemized deductions reflect what you spend on various deductible expenses, such as:

• Medical and dental expenses exceeding 7.5% of your AGI
• Mortgage interest
• State and local taxes (up to $750,000)
• Charitable donations

If the total cost of itemized deductions is higher than the standard deduction, itemizing may reduce your tax bill. The standard tax deductions for the tax year 2022 (those you’ll file in 2023) are:

• 12,950 for single and married people filing separately
• $19,400 for household head taxpayers
• $25,900 for married couples filing jointly

To successfully itemize each item, you’ll need to fill them out on Schedule A and attach it to your tax return. For easier calculation, keep track of any applicable deductions, including charitable contributions, throughout the year.

Confirm the Tax Organization is Exempt

Not all charitable organizations qualify for tax deductions. Before donating, ensure the organization is tax-exempt as per Section 501(c)(3) of the Internal Revenue Code. Such institutions include Red Cross, religious organizations, museums, nonprofit education agencies, and volunteer fire companies.

Still, some nonprofit organizations don’t qualify for section 501(c)(3). Therefore, you should verify each organization’s status through the IRS Exempt Organizations Select Check tool before donating. Remember to also obtain a contribution acknowledgment letter from the charitable organization with its name and date of contribution for donations over $250 when filing.

Donate Stock Instead of Cash

Donating stock to the donor-advised fund, such as through a brokerage account, is more beneficial than selling the stock and donating funds. On the one hand, your stock donation value equals its fair market value (FMV). This means that you’ll get a tax deduction that reflects the current value of the shares in the market, even if you paid significantly less upon purchase.

The other advantage is that you’ll avoid capital gains taxes, the net investment tax associated with selling stock and additional state charges. In 2022, the capital gains tax rate is at a record 20% which is a significant tax bill.

Understand the Amount you Can Claim as Tax Deductions

The amount you can get as a tax deduction depends on the type of donation and organization you donate to. Cash donations to a public charity can be deducted up to 50% of your adjusted gross income (AGI). Whereas, non-cash donations such as stocks, property, and other appreciated assets can earn a tax deduction of up to 30% of your AGI, provided you’ve had them for a year or more.

In many cases, combining more than one asset type in a donation can ensure you get the maximum charitable tax deduction in some situations.

Weigh the Pros and Cons Ahead of Time

Itemizing your deductions takes longer than the standard deduction. It also costs more as expensive tax software is used. Plus, if your total itemized deductions are lower than the standard deduction, it may be better to abandon a charitable tax deduction. Talking to a financial professional can help you make an informed choice.

Ultimately, donating to charitable organizations benefits you and the world at large. Provided your itemized tax deductions are more than the standard deduction, you can get a tax credit for your charitable donations in 2022. The tax deductions depend on whether you donated cash or non-cash items to a charitable organization. Non-cash items such as stock can save you money in the long run, so you should opt for those if you have them at your disposal.