As we move deeper into the heart of the holiday season—a time that also marks the peak of charitable giving—we have much to be grateful for. Whether it’s faith, good health, our family, friends, or financial stability, this season offers a moment to reflect and give thanks.

Different types of charitable organizations

It’s not hard to look around and see individuals who are less fortunate. Thankfully, there are numerous charitable organizations that provide aid. These range from well-known entities like The Salvation Army or Goodwill, which assist the poor, to specialized organizations like Team Gleason, which supports those battling ALS.

Some charities operate as foundations offering scholarships to specific groups, while others may focus on causes aligned with your passions. Whatever your charitable inclinations, there is likely an organization that aligns with your goals. When we have been given much, it’s a deeply rooted principle—both spiritually and socially—to give back.

Understanding Tax Benefits for Charitable Giving

Charitable giving can take many forms, and some types come with tax benefits. Contributions of material items such as cash, stocks, bonds, property, vehicles, or jewelry may be deducted from your taxable income, subject to Adjusted Gross Income (AGI) limitations.

The deduction amount is based on the fair-market value of the items, reduced by the value of any benefits received in return. For example, if you donate to the athletic department of your alma mater and receive preferential stadium seating in return, the value of that benefit will reduce your deductible amount.

Is my donation of time and professional services tax-deductible?

While donating time and professional services is generous, these contributions are not tax-deductible. For instance, a contractor volunteering with Habitat for Humanity cannot deduct the hours they work, even if they are a professional. However, the cost of materials they purchase for the project, such as paint, nails, or drywall, may be deductible.

To qualify as a valid charity for tax purposes, an organization must typically be recognized as a 501(c)(3) entity by the IRS. These are categorized into two main types: public charities and private foundations.

Public charities include the following (according to the IRS)¹⁾:

• Churches, hospitals, and qualified medical research organizations affiliated with hospitals, schools, colleges, and universities
• An organization that has an active program of fundraising and receives contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities
• An organization that receives income from the conduct of activities in furtherance of the organization’s exempt purposes
• An organization that actively functions in a supporting relationship to one or more existing public charities

What is the difference between a public charity and a private foundation?

Private foundations, unlike public charities, typically have a single major source of funding—such as gifts from one family or corporation—rather than widespread contributions. Their primary activity often involves making grants to other charities or individuals rather than directly operating charitable programs.

Tax-deduction limits vary greatly with different types of donations.

The reason that it is important to discern between these types of organizations is that there are limits to the amounts given to these different kinds of entities, based on your AGI. For instance, if you had an AGI of $100,000, you could donate 60% of your earnings to a public charity and have it deducted for tax purposes, but only 30% of your earnings would be deductible to a private foundation. For things like stocks, life insurance, and personal property, these AGI limits are all different.

For help maximizing the tax efficiency of your charitable giving

Being able to give to those less fortunate is something many of us think about as the year wanes and we enter the holiday season. Next month, our charitable-giving post will focus on advanced giving strategies. For help on maximizing the tax efficiency of your charitable giving, we are here! To schedule a free consultation, please visit us at f5fp.com, or schedule a free consultation here.

1. See IRS reference at this link.

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