Understanding charitable contributions in 2023

Charitable contributions (donations by individuals, businesses, or organizations to qualified charitable organizations) can take various forms, including monetary donations, donations of assets or property, volunteering time or services, and donating goods or resources.

Donors may make charitable contributions for various reasons, including personal values, social responsibility, and the desire to support specific causes or organizations. In addition to the intrinsic satisfaction of giving back, charitable contributions can also provide potential tax benefits—donors may be eligible to claim deductions on their tax returns, reducing their taxable income and lowering their overall tax liability.

What qualifies as a charitable contribution?

For a donation to qualify, it must be voluntary and should not result in the donor receiving substantial goods or services in return. Additionally, to count as a charitable contribution for tax purposes, you must donate to an organization the IRS recognizes as tax-exempt, generally under section 501(c)(3) of the U.S. Internal Revenue Code.

These organizations are dedicated to charitable, religious, educational, scientific, or literary causes and must meet specific requirements established by the IRS.

The timing of charitable contributions

To be tax-deductible, contributions must be made and paid in cash or property before the end of your tax year. This rule applies regardless of whether you use the cash or accrual accounting method.

Can charitable contributions lower my tax bracket?

In short, yes—charitable contributions can potentially lower your tax bracket under certain circumstances.

By making eligible donations to qualified charitable organizations, you can deduct the value of your contributions from your taxable income, thereby reducing the income subject to taxation. However, the specific impact on your tax bracket will depend on various factors, including the amount of your contributions, your overall income level, and the applicable tax laws and regulations.

However, don’t forget that your income is subject to state-level taxation, as well (unless, of course, you live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming, which do not tax income, or New Hampshire, which does not tax earned wages).

Here are the updated federal tax brackets for 2023.

As you review the following information, you should also remember that the IRS taxes income at an overall effective tax rate—meaning your entire income is not taxed at your maximum rate.

To put it another way: If you are a single filer who made $578,125 in total earned income, your first $11,000 will still only be taxed at 10%. The same applies to each income threshold, which is taxed at the corresponding rate, regardless of your total earned income.

2023 Federal Tax Rate Single Married Filing Jointly
10% $11,000 or less $22,000 or less
12% Over $11,000 Over $22,000
22% Over $44,725 Over $89,450
24% Over $95,375 Over $190,750
32% Over $182,100 Over $364,200
35% Over $231,250 Over $462,500
37% Over $578,125 Over $693,750

It’s important to note that there are limits and rules regarding the deductibility of charitable contributions, such as percentage limitations based on your adjusted gross income (AGI) and specific requirements for documentation.

How much in charitable donations can I deduct in 2023?

There’s good news and bad news.

The bad news is that the temporary provisions implemented under the COVID-19 relief legislation, which permitted individuals to deduct 100% of their adjusted gross income (AGI) for cash donations in 2020 and 2021, have expired.

The new threshold of deductibility for cash contributions is now 60% of AGI, while non-cash assets fall under a limit of 30% of AGI.

Here’s the good news: The IRS has adjusted the standard deduction to accommodate inflation.

What is the standard deduction in 2023?

The IRS has raised the standard deduction for married couples filing jointly for the 2023 tax year to $27,700, up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction is now $13,850 for 2023, up $900. For heads of households, the standard deduction is $20,800 for 2023, up $1,400 from the amount for the 2022 tax year.

To deduct your charitable contributions in 2023, your total deductions must exceed the standard deduction for your tax filing status.

With that in mind, if you itemize your deductions, you may deduct charitable contributions of money or property made to, or for the use of, any of the following organizations that otherwise are qualified under section 170(c) of the Internal Revenue Code:

  1. A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;
  2. A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or the prevention of cruelty to children or animals;
  3. A church, synagogue, or other religious organization;
  4. A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
  5. A nonprofit volunteer fire company;
  6. A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);
  7. A domestic fraternal society operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
  8. A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.

If you are still determining whether an organization is eligible for deductible contributions, try entering the organization’s name and location into the IRS Tax Exempt Organization Search tool.

How much can you deduct in charitable contributions if you don’t itemize?

Generally, you can only deduct charitable contributions if you itemize deductions on Schedule A (Form 1040), Itemized Deductions.

In 2020 and 2021, a temporary provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed taxpayers to claim up to $300 (individuals) or $600 (married filing jointly) in cash donations without needing to itemize. However, this provision has expired and no longer applies as of the 2023 tax year and beyond.

To fully understand how to leverage charitable contributions to optimize your tax savings, consulting with tax professionals (like us!) is a good idea.

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