TeamGiving to charity is a great tax-saving opportunity. When you make a donation, the charity isn’t the only one that benefits from it because you can deduct your contribution on your tax returns. This is one of the best reasons to give to charity, but there are more things you should know about tax-deductible donations before making your contribution. Tax-deductible donations need to meet some guidelines otherwise your good deed won’t be rewarded with extra cash. Keep reading to learn how to make a tax-deductible donation and save money while giving money.
1. Know how much you can deduct
Deduct up to 100% of the adjusted gross income if you’re donating cash or up to 60% for other donations! Keep in mind that the percentage depends on many factors such as type of the organization, and type of the contribution, so you might be limited to just 20% or 50%. For example, the limit is lower for cemetery organizations, fraternal societies, and veterans organizations. You’ll find exact details in the IRS Publication 526. The limit will apply to all your donations, regardless of how many organizations you contribute to. The donations that are higher than the limit might be deductible later thanks to a process known as carryover.
2. Know how to claim the donation on the tax return
Things you should know about tax-deductable donations include itemizing at tax time. You’ll need to fill out Schedule A with your tax return. Consider the standard deduction, and it might be better than itemizing if it’s more than the entire sum of itemized deductions. However, you won’t get the deduction for your donations if you don’t itemize. So, you might need to use better tax software, which will cost you, or pay your tax preparer more.
3. Donate to a qualified institution
Your donation will be tax-deductible only if you give it to an organization that is tax-exempt. Qualified institutions include museums, nonprofit educational agencies, and Red Cross. Not all organizations fall into this category, so one of the things you should know about tax-deductible donations is that you need to make sure that you’re choosing the right charity. Use the Tax Exempt Organization Search on the website of IRS to check the organization you want to donate to. Don’t hesitate to also ask the charity about the amount from your donation that will be deductible.
4. Save the documentation
Regardless of the amount you’re donating, keep track of all the donations. This documentation might include a credit card statement, a bank statement, a receipt from the organization, a pay stub, or more depending on the way you’ve made the contribution. You’ll need additional documentation in some circumstances. You can find out what documentation you’ll need for deduction depending on the donation, but don’t ever skip this step. Without proper documentation, all your efforts will be for nothing.
5. Know that volunteering expenses can be tax deductable
The value of the service or time that you provide to charity isn’t deductible, but related expenses can be. Of course, these expenses must be solely and directly connected to volunteering and the work that you did. For instance, this could be the expenses of driving to charitable events and delivering items. You can use the standard mileage deduction or a receipt for gas. In case you’ll deduct the actual expenses by holding onto the receipts, make sure to keep them and save them in a safe place in case you ever get audited.
6. Deductions for donated things depend on the fair market value
You can donate household items, clothes, and goods, but one of the things you should know about tax-deductible donations is that they all must be in good, usable condition, and the deduction is limited to their fair market value. You could consider their thrift-store price or use a tax preparation program to determine their value.
7. You get only a partial deduction if you got something in return
One of the things you should know about tax-deductible donations is that certain donations will require some calculation to determine the right amount. Among these are the donations where you got a certain economic benefit for your donation, like goods or services as a reward for your gift. For example, if you are given a T-shirt that is worth $20 for your contribution of $40, only $20 is the deductible amount. It doesn’t have to be a T-shirt, and it can be a charity dinner, but the same rules apply.
Now that you’ve learned about the 7 things you should know about tax-deductable donations, read about the reasons to give charity and make a contribution to your favorite one.
