Charitable Giving This Year?

by Tom Yamachika, President, Tax Foundation Hawaii

I’m sometimes asked about what the tax laws are with regard to charitable deductions.  Do our governments allow a tax benefit for donations to charitable organizations such as the Tax Foundation of Hawaii (shameless plug there)?

Well, they do, and then they don’t.

This year, both the federal and state governments allow an itemized deduction for gifts to charity.

This means that you need to itemize to get the deduction.  And the standard deduction, which is what you get when you don’t itemize, is a bit larger than it was in previous years.  If your standard deduction is larger than your itemized deductions, of course you would want to use the standard deduction and not bother with itemizing.

For state tax, there is an additional complication called the Pease limit.  The Pease limit chips away at your itemized deductions for taxpayers making more than a certain amount of money.  The more you make, the more itemized deductions get disallowed, until you are left with 20% of the itemized deductions that you otherwise would have been able to use.

Next year, there will be additional wrinkles.

For 2026, the One Big Beautiful Bill Act will allow taxpayers to deduct up to $1,000 ($2,000 for a couple) for cash gifts to qualifying charities whether or not the taxpayer itemizes deductions.  The good news is that this deduction will also reduce Adjusted Gross Income, and AGI figures into all kinds of limits both within the tax law and outside of it.  The not-so-good news is that there will be a “floor” of 0.5% of AGI, meaning that charitable contributions up to the floor amount won’t be deductible at all.

In the upcoming legislative session, lawmakers will be asked whether they want to adopt all or some of the federal tax law changes into the Hawaii tax system for the years 2025 and beyond.  So, we won’t know which federal changes will be adopted until the Legislature wraps up, usually in early May, and the Governor signs the appropriate bill, which normally happens in late June or early July.

In the meantime, you can take steps to make sure that donation of your hard-earned assets will be deductible.

First, know your charity.  Some organizations that say they are charities without being recognized as such by the tax agencies.  A legitimate charity should be able to show you proof that it has been recognized—by the IRS or by the State.  Look for a document called a determination letter.  Here is what one looks like.

Second, be familiar with the rules that apply to the donation of assets other than cash, like stocks, cars, or old clothing.  If, for example, you want to give a charity some money but you happen to have appreciated stocks that you don’t want to keep, donating the stocks directly to the charity will give you a deduction for the value of the securities. without having to pay capital gains tax on selling the securities.

Third, keep good documentation of what you are giving, and don’t lose any paperwork that the charity gives you.  If you went to a charity benefit gala dinner and paid $200 for tickets for meals worth $75, the charity is supposed to send you a letter saying this so you can deduct the $125 difference as a charitable donation.

Happy Holidays to you, and to the charities you support.  May you both make a positive difference in the world!