As many people know, charitable contributions to their community don’t just make a difference—it also provides an opportunity to relieve your tax burden for the year. In fact, this tax benefit is a massive reason why so many donors give; more than two-thirds of donors with a high net worth have said they would decrease their giving amounts if they were not given such a nice tax deduction for doing so. Keep in mind that if you are hoping to receive a tax break because of your donations, there are a few things to think about in order for your donation to count.
- Itemize your deductions: If you want to be able to claim a charitable deduction on your taxes, you need to itemize the deductions. You can report your itemized deductions on Schedule A on your federal form 1040.
- Choose your charity wisely: Not all charities are qualified when it comes to tax deductions, so you can always ask to see their letter from the IRS. To make this easier, many charities will put this letter on their website. If, for some reason, you cannot get ahold of the letter, feel free to search online using an IRS Exempt Organizations Select Check. You can also contact the IRS to learn more. Churches, synagogues, temples, and mosques are all considered to be de facto organizations and all are eligible to receive deductible donations.
- Donations to individuals do not count: Even the most deserving of individuals will not help your charity deductions on your taxes. This includes handing out items to the homeless, taking up collections at your workplace, or helping someone who recently went through a disaster like a burned down home. However, if the deduction really matters to you, try to work through an established organization that does apply, such as the Red Cross.
- Get a receipt for everything, including cash: A cash deduction must be proven by a bank record. You can use a canceled check or a credit card receipt that very clearly shows the charity you donated to. Or, you can also get the information in writing from the organization itself. Those who claim a deduction for a $250 contribution with acknowledgment from the charity should have no issues. We recommend always getting a receipt, as charities will happily give you one. You won’t need to provide this documentation with your tax return, but you will want to hold onto it in case they wish to conduct an audit.
- Consider payroll deductions: Many employees are beginning to rely on charitable opportunities that their company provides. If you make a donation through a payroll deduction, hold onto the the pay stub and form W-2 or another document that your company gives you. Make sure it has the amount withheld on it!
- Keep track of the value of incentives: Your charitable donation is only deductible only if your donation is worth more than anything you got in return. For example, if you make a donation and get invited to a dinner because of that, you can deduct the cost of your donation only if the dinner is less than the donation. If you aren’t sure what the value is of the item you got in return, just ask! The charity will likely do the math for you and document the value.
- Donate appreciated assets: You can donate any of your items that have been appreciated in value, such as property or art. By doing this, you can deduct the fair market value—assuming you’ve owned it for one year, at least—and you can avoid paying capital gains tax.
- You cannot deduct the value of your time: While your time is not able to be counted towards a tax deduction, you can deduct out of pocket expenses that are related to volunteering, as long as they are not reimbursed or considered personal. This could include transportation, parking, tolls, uniforms, and supplies used for the service. Keep good records!
- Document the value of your gift: Your records make more of a difference than you might think! This is especially true for donations that are items, not cash. You can usually take a deduction for the market value of whatever you donate, or for whatever it would sell for in the condition it is currently in. If you are documenting the donation yourself, be as specific as possible! You will need to keep track of the condition of the items donated. And, if you are giving property worth more than $5,000, be sure to get a written appraisal of the property’s value.
- Limits apply: You may not realize that there are limits to this deduction, but there are. If you give more than 20 percent of your adjusted gross income, you will need to do more research into these limits.
- The calendar matters: Your contributions are only deductible in the year that you made them. If you want your donation to count during the tax year, it needs to be given by December 31st! That just means given, however; if you send a check by the end of 2017 and it isn’t cashed until 2018, then it can still count for 2017.
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If you are in need of an IRS tax lawyer, look no further than Tax Law Offices! We are here to help you as you work to understand your taxes. Contact our team today for a free consultation and to learn how we may be able to assist you.