Isn't That Rich Podcast

What Charitable Donations Really Mean for Your Taxes, and How to Give With Confidence

It is officially the holiday season. Everywhere you look there are toy drives, coat drives, Giving Tuesday posts, and all the warm and cozy reasons we love this time of year.

It is also the season when a very practical question shows up right alongside the generosity: How do I give thoughtfully, and what does the IRS actually let me deduct?

So we brought in one of our favorite people at Farmers State Bank to help us sort it out. Matt Businaro, CPA and CFO of Farmers State Bank spends a lot of his life buried in tax strategy, regulation, and financial planning, which makes him the perfect person to walk through what “smart giving” really looks like.

Quick note before we start: We are sharing general education and real-world context, not personal tax advice. Always consult your tax advisor for anything specific to your situation.

Why the Holidays Turn Into the Biggest Giving Season

Matt explained that there are really two forces at work.

First, it is a timing thing. When you get close to the end of the year, people realize there is not a lot of runway left to plan. You have a full year of income behind you, tax season is around the corner, and naturally you start asking, “Is there anything I can still do that helps, both for my community and for my tax situation?”

Second, it is the season we are in, and Matt said it in a way that honestly stops you in your tracks. December is built around the greatest example of giving. God giving His Son, Jesus, to be our Lord and Savior. Matt’s point was simple: there has never been a greater gift in the history of mankind, and when you sit with that, it makes sense that people feel more generous this time of year. It inspires how we show up for our families, our neighbors, and the causes that matter to us.

So yes, there is strategy involved, but there is also something deeper happening during the holidays. People are paying attention. They are more aware of needs. They are more open-handed.

What a Charitable Deduction Actually Is

Let’s clear up one of the biggest misconceptions right away.

A deduction is not a dollar-for-dollar refund. A deduction reduces your taxable income, and then your tax rate determines how much it reduces your taxes.

Matt gave a simple example. If someone donates $100,000 and they are in a 30% tax bracket, the tax benefit is roughly $30,000. That is still meaningful, but it is not the same as “I donated $100,000, so I owe $100,000 less in taxes.”

This is also a good moment for a reminder we love: Do not let the tax cart drive the giving decision. Give because you want to help. The tax benefit can be a nice bonus, but it should not be the whole reason.

The First Step: Make Sure It Is a 501(c)(3)

For a donation to be deductible, it generally needs to be made to a 501(c)(3) organization.

Matt shared a few common examples people recognize immediately:

Churches are 501(c)(3)s. Many healthcare systems have charitable foundations that are set up specifically to receive donations. Universities and community colleges often have foundations as well, especially for scholarships. Even organizations that are not charities at their core may have a charitable arm, like the Shriners and the Shriners Hospitals for Children.

Here is the key: lots of groups are “nonprofit” or “tax-exempt,” but not all of them are 501(c)(3) charities. If you are giving because you want the donation to be deductible, that “(3)” matters.

If you want to verify, Matt recommended checking the organization’s website first. If you are still unsure, you can look up the organization’s filing status using resources like GuideStar or a nonprofit 990 database. (Churches are a special case because they are not required to file Form 990, but they are still considered 501(c)(3) organizations.)

What Counts as a Donation (It Is Not Just Cash)

Most people think charitable giving means writing a check or donating online. That is the most common method, but Matt reminded us that the IRS allows other forms of giving too.

Cash and checks count. Appreciated property can count too, like certain stocks, and in some cases even real estate. Some charities can use the property directly, and others may sell it and use the proceeds to support their mission.

This is where planning can really matter, because some non-cash gifts have additional tax implications and additional documentation requirements. If you are considering something beyond a simple check, that is a great time to talk to your tax advisor before you make the gift.

The Paper Trail Matters More Than People Think

If there is one theme Matt hit over and over, it was this: document your giving.

Cash is the hardest to prove, which is why checks and electronic donations are often simpler. For cash gifts at church, the envelope system and year-end giving statement help, but you still want to be intentional.

For gifts of $250 or more, charitable organizations typically provide a written acknowledgment. If you give routinely, many organizations will send an itemized statement by January 31 showing the dates and amounts of your gifts, which is incredibly helpful at tax time.

Donating Stuff to Goodwill or Salvation Army

This is where people get tripped up.

Those organizations will often give you a receipt that says something like “one bag of clothes,” but they are not going to assign the value for you. The responsibility is on you to track what you donated and support the value you claim.

Matt’s practical advice was to take photos and create a simple list of what you donated before you drop it off. Then you can use the organization’s valuation guide to estimate a reasonable fair value. If you were ever questioned, the combination of photos, a list, and the published valuation guidance gives you a much stronger case than guessing after the fact.

Do You Need to Hit a Certain Amount Before You Benefit?

This is the part that surprises people.

In 2025, charitable deductions are generally itemized deductions, which means you only benefit if your total itemized deductions exceed the standard deduction you automatically receive.

Itemized deductions often include things like state and local taxes, real estate taxes, mortgage interest, and charitable contributions. Most tax software will compare your itemized total to the standard deduction and choose whichever is higher.

So if you donate $100 to a charity, you absolutely can keep record of that gift, but you might not see a tax benefit if you are not itemizing.

The 2026 Change People Should Know About

Matt shared a change coming in 2026 that could matter for a lot of households who normally do not itemize.

In 2026, there is an “above the line” charitable deduction for people who do not itemize, with limits:

If you are married filing jointly, you may be able to deduct up to $2,000 in charitable contributions even if you do not itemize. Other filers may be able to deduct up to $1,000 even if they do not itemize.

That is a big mindset shift for people who have felt like, “Well, I do not itemize, so giving does not help me at tax time anyway.” In 2026, many of those households could see at least some direct tax benefit.

Matt also mentioned a new floor for itemizers in 2026: charitable giving generally needs to exceed 0.5% of adjusted gross income before the first dollar becomes deductible. For many generous givers, that may not be a major hurdle, but it is still something to be aware of.

What Does Not Count Toward a Deduction

This is where we all have to walk the line between being kind humans and being realistic about taxes.

Giving to a friend in need, helping a neighbor, or donating to a GoFundMe for someone’s personal situation can be the right thing to do. It just is not usually tax deductible.

Volunteering is another big one. You cannot assign your hourly wage to your volunteer time and deduct it as a donation. Your time matters immensely, but the IRS does not treat it like a deductible charitable expense.

That said, Matt pointed out something people miss: certain out-of-pocket costs related to charitable service can sometimes be deductible. For example, if you travel on a mission trip connected to a qualifying organization, your travel expenses may be deductible. If you buy specialized tools or supplies used for a charitable project, those costs may be deductible too. The key is that it has to be connected to a qualifying organization, and you need documentation.

A Misconception About Wealthy People and “Paying No Taxes”

You have probably heard some version of this: “Rich people donate a ton and then they pay zero taxes.”

Matt’s answer was simple: donations are deductions, not credits. Even large donations reduce taxes based on a person’s tax rate. They do not wipe out taxes dollar-for-dollar.

He also explained there are percentage limits tied to adjusted gross income. Cash-type gifts can be limited to a percentage of income in the year you give, with carryforwards for excess amounts. Appreciated property gifts can have different percentage limits. Translation: there are rules, caps, and carryforward mechanics that keep it from being as simple as “donate big, owe nothing.”

Two Powerful Options for Retirees

Matt shared two giving strategies that are especially relevant for people in retirement age.

If you are 70 and a half or older, you may be able to make qualified charitable distributions directly from an IRA to a charity, up to a limit Matt referenced as $108,000. The important part is that the payment goes directly from the IRA to the charity.

He also explained how this can connect to required minimum distributions, which begin at a certain age (Matt referenced 73). If you are required to take a distribution, sending that amount directly to a charity can satisfy the distribution requirement without it being treated as taxable income to you in the same way. You cannot double-dip by excluding it from income and also deducting it, but it can still be a meaningful approach for charitable retirees who do not normally itemize.

Because retirement rules can get nuanced quickly, this is a great spot for that favorite line again: consult your tax advisor.

How to Vet Charities and Avoid Getting Scammed

Sadly, scams love the holidays too.

Matt said urgency is a major red flag. A legitimate charity will accept donations year-round. Pressure tactics, fear-based messaging, and “you must act right now” language should make you pause.

Another major red flag is gift cards. If someone is asking you to buy gift cards and give them the numbers, that is almost always a scam. (There are legitimate drives where a trusted organization collects gift cards to distribute to families in need, but that is very different than a random call demanding gift card codes.)

If you want a simple rule: when information “finds you” and pressures you, slow down. When you intentionally choose where to give, verify the organization, and donate through proper channels, you are far safer.

When Should You Talk to a Tax Advisor?

Matt’s answer was yes, and sooner is usually better.

If you wait until mid-December, there are fewer meaningful moves you can make for that tax year. Planning earlier gives you more options and less stress.

He also gave advice we wish more people followed: if something unusual happens, unusual income, a big purchase, a major sale, a large gift, consult your professional before you do it. Once it is done, it is often too late to restructure it in a more tax-advantageous way.

The Best Takeaway: Give With Your Values, Then Document Like a Pro

If you remember nothing else, remember this.

Give where you want to give. Give because it matters to you. Use your moral compass. The tax benefit can be helpful, but it should not be the only reason.

Then, once you decide to give, do the simple things that protect you later: verify the organization, keep receipts, take photos when you donate goods, and keep a clean record.

Generosity is one of the best parts of the holiday season. With a little planning, it can also be one of the smartest parts.