Ways to Support Nonprofit Organizations

Posted on Wednesday, October 13, 2021

Studies have shown that the majority of giving to nonprofit organizations comes from individuals.  Whether the amount is $5 or $50,000 all gifts have an impact on a nonprofit and many organizations could not survive without support from individuals.  As a potential donor, it is important for you to give to causes and organizations that are important to you.  Here are some of the ways that you can donate to nonprofits.

Cash Donations

Ordinarily, individuals that do not itemize cannot claim a deduction for their charitable contributions.  The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted in December 2020, extends a new charitable tax benefit through the end of 2021.  With this law, individuals that do not itemize can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021.  The maximum deduction is increased to $600 for married individuals filing joint returns. Cash contributions to supporting organizations, donor advised funds, most private foundations, and most charitable remainder trusts do not qualify. 

The new law also allows itemizing individuals to claim a deduction up to 100% of the adjusted gross income for most cash contributions made during 2021.  This limit typically ranges from 20% to 60% of AGI. 

Bunching Donations

With the changes in the tax laws over the past few years, fewer taxpayers have been able to itemize.  This means that those individuals that used to be able to itemize and receive a tax benefit from donating to nonprofits no longer receive this benefit.  One way to overcome this loss is to bunch contributions made into every other year or every three years.  For example, if you typically give $10,000 every year, give $20,000 every other year.  The increase to $20,000 may put you over the threshold for itemizing while the $10,000 contribution does not.  You will then be able to itemize every other year when you make a contribution while taking the standard deduction in the years that you don’t.

Utilize a Donor Advised Fund

A donor advised fund is a separate fund maintained by a 501(c)(3) organization.  Individuals make contributions to the donor advised fund and receive a tax deduction when the contribution is made to the fund.  Then the individual can recommend payments from the donor advised fund to specific nonprofits in future periods.

Gifting Stocks

If you have stock that you’ve held for more than a year in a brokerage account that has some large unrealized gains, you may want to consider gifting the stock directly to a nonprofit.  Selling the stock and contributing the proceeds would create a capital gain, but if you donate the stock directly to the nonprofit, you can avoid paying capital gains tax on the appreciation.  If you itemize, you get a charitable deduction for the fair market value of the stock.

In order to make a gift directly of stock and avoid capital gains tax, you must have held the stock for over a year, and the stock must be in a taxable account, not an IRA or qualified account.  The stock must be transferred directly from your investment account to the nonprofit’s account.  Once the nonprofit receives the stock, they can sell it without having to pay capital gains tax.  Just make sure you check with the nonprofit first to confirm that they accept stock donations. 

Qualified Charitable Distribution

A qualified charitable distribution is a distribution directly from your IRA to a nonprofit.  The individual doesn’t get to take a charitable deduction for the donation, but the taxable part of the IRA distribution is reduced by the amount sent to the nonprofit.  This type of distribution works well for those trying to reduce their IRA balance.  There are some restrictions on qualified distributions.  The funds must go directly from the individual’s IRA account to the nonprofit.  There is a limit of $100,000 per year for qualified charitable distributions, and the individual must be at least 70 ½ years old at the time of the distribution.

Time and Talent

Another way to give to nonprofits is to donate your time and talent.  Most nonprofits rely on volunteers to help them carry out their mission.  If organizations are unable to get these services donated, they will likely need to pay for them.  If you would like to support a nonprofit through a noncash manner, donating your time is a great idea.  The value of your donated time and services cannot be deducted as a charitable contribution for taxes.

Clothing and Household Items

Some nonprofits accept donations of goods, such as clothing and household items.  If you itemize, you can take a deduction for the fair market value of clothing or household items donated that are in good used condition or better.  Make sure that you keep a detailed list of all items donated.  

Do Your Research First

Before making a contribution to a nonprofit, do your research to make sure the organization is a qualified charity.  You can look up any nonprofit registered the IRS using the Tax Exempt Organization Search tool on their website.   Also, it’s good to learn about the organization.  What type of programs does it offer?  How much of its expenses go to programs versus management and general?  Reviewing Form 990, a nonprofit’s annual information return filed with the IRS, is one of the best ways to get information about a nonprofit.  Form 990 is open to public inspection, which means anyone can get access to a nonprofit’s return (excluding certain parts related to donor information).  In order to comply with the public disclosure requirement, most nonprofits post their 990 to their website.  But you can also access Form 990s through GuideStar, Candid, or the IRS websites. Note that churches and religious organizations are not required to file Form 990 so you will not be able to view these.

Contributed by: Carrie Minnich, CPA, MAcct | Director | DWD CPAs & Advisors

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.