What You Need to Know About Tax Deductions for Charitable Donations
There are many advantages to giving to charity. Yes, it makes you feel good, but it also might provide you with a tax deduction.
The IRS has become much more stringent about the charitable deduction, so it pays to know the requirements and to collect your paperwork throughout the year, rather than waiting for tax time.
Here s what you should know about the tax benefits of giving to charity. Be sure to consult your tax adviser about your particular tax situation.
If you itemize deductions on your tax return, you may be able to take an income tax deduction for a gift to a qualified charitable organization.
That is a big if however. All taxpayers are entitled to a standard deduction, and it is only when you exceed that deduction that itemizing pays off.
When a taxpayer does take a charitable deduction, the savings goes up as one s tax bracket increases. For instance, if your tax bracket is 35 percent, a $100 donation actually costs $65. However, if your tax bracket is 15 percent, the cost of a $100 contribution is $85. The wealthier one is, the more advantageous is charitable giving.
The standard deduction changes each year, so check it for the year you re filing taxes.
To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
Your donation to a qualified charity is deductible the same year in which it is made. The contribution is considered paid when you put the check in the mail, or when it is charged to your credit card (not when you pay the credit card company). Make sure that your donation is made by December 31 of the year in which you plan to claim a deduction.
Many charitable organizations qualify for tax-deductible donations, but not all. Look for the 501(c)(3) designation to be sure.
The charity will tell you if your donation is tax deductible, plus you can search for it at the IRS website.
Here are the types of organizations where you can usually take a tax deduction for your contribution:
- Churches and other religious organizations
- Tax-exempt educational organizations
- Tax-exempt hospitals and some medical research organizations,
- Government agencies such as a state or division of a state
- Organizations (aka federated funds), such as a community chest, that are supported by the public
- Some private foundations that distribute the contributions they receive to public charities. Some private operating foundations. More about foundations.
- Some membership organizations that receive more than a third of their contributions from the general public.
Charitable tax deductions are not allowed for contributions to an individual, a foreign government, international charities, political parties, political campaigns, social welfare organizations, commonly known as 501(c)(4), or political action committees. More
We are all concerned about good causes abroad, and most of us do want to give globally. But, what are the implications for your charitable tax deduction?
If the charity is registered in the U.S. as a charity, you can take a deduction for your donation. If the charity is not registered, there is no tax deduction. Many, many nonprofits that are registered in the U.S. provide international aid, especially for disaster relief. More
There are no limits on charitable contributions to qualified charities for most taxpayers. Most of us will be able to deduct cash contributions in full up to 50% of our adjusted gross income. There are other limitations that come into play should you make significant contributions of property or appreciated capital gains. If you fall into these categories, be sure to consult with your tax adviser to see if your deductions will be limited.
There are rules for non-cash donations such as property or old clothing, household furnishings, or office equipment.
For property owned for more than a year, the deduction is usually equal to the property s fair market value.
Donated clothing and household items must be in good condition or better, according to the IRS. You must have a receipt for the goods from the charity to claim a deduction. You cannot take a deduction for items you throw into a bin.
You may need a qualified appraisal if you donate an item or a group of items for which you deducted more than $500.
Making a car donation to a worthy charity seems like a good move, but, unfortunately, car donation is an area of charity that is rife with fraud and misleading information.
To receive a deduction for the donation of a car, truck, boat, airplane or any other vehicle, the item must be worth more than $500. Plus, you must have a written acknowledgment from the charity.
No, you can t deduct the value of your time spent on charitable work as a charitable donation, but you can deduct your out-of-pocket expenses such as mileage, currently set at 14 cents per mile. Other possible deductions for expenses include your travel to volunteer abroad or even in another state.
To claim a deduction for cash, check, or other monetary gift, you must have written confirmation from the charity.
The confirmation must contain the name of the organization, the date of the contribution and amount of the contribution. Charities are only required to provide written acknowledgment for donations over $250, but most do provide some receipt no matter what size of donation you provide.
For contributions less than $250, if a receipt has not been provided, a canceled check or a bank record will suffice. You cannot deduct casual donations that you drop into a charity s collection box or bucket without a receipt.
If you receive some goods or services in exchange for your donation, the charity must specify the value of those goods or services. You can only deduct the amount of your donation that is above that value. The paperwork from the charitable organization should spell out what is deductible.
If you text a donation to any charity, use your phone bill as your receipt. It should list the date, amount donated and the name of the charity. When you text-to-give to a charitable organization, the nonprofit does not receive information about who you are. You are anonymous. Therefore, you won t receive a receipt from that charity. The charge for the donation appears on your phone bill. More
There are many crowdfunding websites now. Some, like Kickstarter, are primarily for raising money for a business, product or project, although nonprofits are not excluded.
Some crowdfunding sites such as Crowdrise or Generosity by IndieGoGo may feature both nonprofit campaigns and individuals who raise money for another person.
Only qualified nonprofits that fundraise on these sites can provide a tax deduction.
Look for some verification of the tax status of the organization that is raising funds. Obviously, if the campaign is for an individual, business, or product, there would be no charitable tax deduction.