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The tax advantages of charitable giving

  • For those who increased their contributions this year, you can deduct up to 50 percent of your adjusted gross income in charitable contributions.
  • There are a few tricks, too, when it comes to the tax benefits of giving to charity.
  • Plus, with the GOP's tax plan under consideration, it may be worth accelerating your donations.
Volunteers get a briefing at the George Brown Convention Center that has been turned into a shelter run by the American Red Cross to house victims of the high water from Hurricane Harvey on August 28, 2017 in Houston, Texas.
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Volunteers get a briefing at the George Brown Convention Center that has been turned into a shelter run by the American Red Cross to house victims of the high water from Hurricane Harvey on August 28, 2017 in Houston, Texas.

After back-to-back storms pummeled Texas, Florida and Puerto Rico, many people upped their charitable contributions for 2017. Now it's time to reap the tax benefit.

Daniel Borochoff, president of CharityWatch.org, predicts donations could surpass last year's record high, driven primarily by overall economic growth, although the recent disasters will also play a role.

"The giving climate will be heightened," he said.

And while taxes might not have been at the forefront when providing aid, those charitable donations to qualified nonprofit groups are tax-deductible if you itemize your return instead of taking the standard deduction.

Generally, you can deduct up to 50 percent of your adjusted gross income in charitable contributions, but deductions can be limited to 30 percent of your income in some cases.

If you've volunteered your time, you can deduct the entire amount of your mileage, parking, tolls, train or bus ticket and even airfare if your travel was to exclusively pitch in at a recognized charitable organization.

If you've made a noncash gift, such as food, first aid or supplies, you should keep a receipt of the donation, a note of the organization's name, and the date and fair market value of all noncash goods, in order to get the deduction come April.

If the value of a non-cash gift is more than $5,000, like a car, you will also need a certified appraisal. Then you can deduct the fair market value or appraisal value, whichever is higher, according to Lisa Greene-Lewis, a CPA and tax expert at TurboTax.

There are a few tricks, too, when it comes to the tax benefits of giving assets to charity, like avoiding capital gains tax on investments by giving stocks or other items that have grown in value.

High-income earners, in particular, should consider a noncash donation specifically because of the tax advantages, according to John Voltaggio, managing director at Northern Trust.

For example, if you have shares of Coca-Cola stock (which is up more than 10 percent year to date) and donate it, you don't have to pay taxes on the gain, but you will still get credit for the deduction equal to the current fair market value.

That way, "they are eliminating being taxed on the sale of the stock," Greene-Lewis said. "They won't be hit with capital gains and they get to take the deduction." (Although in the case of stocks, certain rules apply to the required holding period.)

Locking in the tax benefits

Further, if the GOP's recently proposed tax plan is passed, the deduction for charitable contributions may be more valuable this year than it will be under the new code.

Lowering the top tax rate would mean that a charitable deduction would be worth about 35 cents on the dollar if the rate is cut to 35 percent, compared to 40 cents on the dollar now.

Voltaggio recommends considering accelerating your donations to get the current tax benefit or using a donor-advised fund, which allows you to make a charitable contribution, receive an immediate tax break and then recommend grants from the fund to your favorite charities over time.

"Even if rates don't go down, there might be a particular reason to give this year — like helping disaster victims — but from an economic perspective it also makes sense," he said.

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Trump, GOP push tax cut for the ultra-wealthy
These jobs will benefit the most from the GOP tax plan
How Trump tax plan would alter mortgage interest deduction