Giving to charity feels good, and there's even a financial benefit - you can deduct any charitable donations from your taxable income. However, many rules govern these donations. Cash gifts are handled differently than non-cash gifts, and different rules apply that depend on the amount of the donation.
Tax laws can be complicated. However, you can easily find out the details for everything you need to know with some online research or from your local tax professional. Make the most of your charitable donations with these tips!
1Make Sure The Organization Is Qualified
Ensure that the organization qualifies before claiming a tax deduction. For example, contributions made to political candidates or a specific person are non-deductible. There's a process an organization goes through to acquire the proper status with the IRS and become qualified. Any organization you financially contribute to can provide information about their status regarding tax deductions.
If you're donating anything other than cash, the value is claimed at the fair market value. These values would be similar to what you would pay if you bought something at a thrift store or yard sale. Look at the prices on the Craigslist website. Those are typically fair market values. There are also special rules when you're donating a vehicle.
2Maintain Accurate Records
A receipt is an excellent way to keep track of your donations. In place of a receipt, your banking records are also sufficient. For any amounts over $250, it's best to have both a receipt and a banking record.
3Reduce Your Deductions
If you're receiving any benefit from your donation, like tickets to sporting events, you're required to subtract that amount from your donation when claiming a deduction on your taxes. Reduce your deduction by any value you receive. For example, if you donate $500 but benefit by receiving "free" carpet cleaning worth $200, your tax deduction would be $300.
4Contributions Have Different Rules
A single donation of $250 or more has specific reporting rules. Another set of rules, primarily an appraisal by an expert, comes into play when the amount is $5,000 or more. If you're making non-cash donations that total $500 or more, there are other rules. See www.irs.gov for more information.
5Give Assets That Have Appreciated
Gifts of stock, for example, that have appreciated have an added benefit. You get to deduct the full value. And you're not taxed on the capital gains.
This is because you didn't benefit from it. The extra money comes off of your taxes and goes directly to the charity. Everyone wins except the IRS.
6Deduct Your Costs For Helping Charity
You can deduct mileage and any other out-of-pocket expenses related to any direct service you provide to a charity. This can include parking, tolls, travel expenses, lodging, and food. Proceed with caution when you're claiming these types of deductions. The IRS tends to scrutinize anyone who takes advantage of this opportunity. Honesty is the best policy!
7The Limit Is 20%
You can certainly give away every last cent to the charitable organization of your choice. However, your charitable tax deductions are limited to 20% of your adjusted gross income. But you might be able to carry over your excessive contributions to the following tax year. See a tax expert if your contributions exceed this limit.
Many great causes could use your support, and it feels wonderful to be able to help them! It's even better when you can reduce your tax burden in the process. Use these tips to claim the tax deductions you deserve.
Jackie Wing is an Alaska native, who enjoys snowboarding more than is probably socially acceptable. She lives in Anchorage with her two dogs Reese and Peanut, or as she likes to call them "Thing 1" and "Thing 2.".