Tax Prep & Planning

Tips for Tax Deductible Donations to Charitable Organizations

’Tis the season for giving! On and around the holidays, many Americans help those in need by giving back through charitable contributions, especially on Giving Tuesday.

What Are Tax Deductible Donations?

It’s no secret that charitable donations may be tax deductible and help lower your tax bill. But not all donations or contributions are created equal. There are specific IRS guidelines to follow when it comes to tax deductible donations to charity. Here are a few tips to make sure your contributions positively impact your tax return:

1 – Make Sure The Organization is Legit

Not all non-profit organizations are eligible to receive tax-deductible donations. To qualify for a tax deduction for your charitable contribution, your donation must be to a qualified charitable organization.  Luckily, the IRS has put together a list of IRS Exempt Organizations so you can easily check that you are giving to a qualified organization. Double check that the organization you intend to contribute to is on the list. Also, beware of scammers posing as qualified charities, especially around holiday time.

2 – Political Donations Don’t Count

If you donated to a specific individual, politician, or political organization, your donation does not qualify as a tax deduction.

3 – Itemize Your Deductions

To deduct a charitable contribution, include Form 1040 Schedule A with your tax return. This form is used to report all itemized deductions, which can help reduce your tax liability. Additional forms may also be needed, such as Form 8283 to report non-cash gifts over $500. Schedule A also includes other possible tax deductions like medical and dental expenses, taxes and interest paid, and casualty losses in a federally-declared disaster area.

4 – Personal Benefits = No Deduction

If you win a bid at a charity’s silent auction for a celebrity basketball game or a free spa day, you can’t deduct the full amount you paid for the item. That’s because if you receive a personal benefit from your contribution, then you can only deduct the amount that exceeds the fair market value of the benefit received. “Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts,” according to the IRS. For example, if you pay $500 for a fundraising dinner for two at a local restaurant that would typically cost $100, you could deduct only $400 because you received services with a fair market value of $100. The charity should give you documentation acknowledging your contribution and the fair market value of what you received.

5 – Clothing and Household Items

Clothing and household items must be in good used condition or better to be deductible. You should not deduct the full price that you paid for the item, but what they are worth at the time they’re donated. Special rules apply to donations of cars and other vehicles.

6 – Good Record-Keeping is Key

Like any other tax deduction, maintaining proper documentation of your charitable donations is key. Keep documentation of the charitable transaction for at least three years. A qualifying document can include a bank record, payroll deduction record, or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. A cash contribution of $250 or more requires written acknowledgment from the charitable organization. Other documentation requirements apply to non-cash donations, depending on the value of the item donated.

7 – You Can’t Donate Value of Your Time

Many people wonder, “Can I deduct the time I volunteered?” The answer is “no,” you can’t donate the value of your donated time. The good news is that the costs associated with volunteering for a qualified charity CAN be deducted. This includes cost of transportation and supplies used while volunteering. Just like any other type of tax deduction, remember to keep good records of the expenses incurred while volunteering.

8 – There Are Limits to Your Contributions

Did you know there are limits to tax deductible donations to charities? That’s right. Generally, the deduction for cash contributions is limited to a percentage of your adjusted gross income (AGI). Deductions may be limited to a percentage of your AGI depending on the type of charitable organization and the type or property donated.

So, go forth and be charitable! Not only is it kind, but tax-deductible donations also come with tax benefits.

For one-on-one guidance on charitable donations and other types of tax deductions, meet with Block Advisors.

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