Get a Tax Deduction For Charitable Giving
Each year as Dec. 31 draws near, Americans are bombarded by requests for donations. Many answer those solicitations, happily giving to their favorite charities.
This year-end generosity also might pay off at tax time, as long as you know and follow the Internal Revenue Service's rules on charitable contributions.
Itemizing required
You can give thousands of dollars, but if you claim the standard deduction amount on your tax return, your charitable gifts will do you no tax good. You must itemize expenses on Schedule A to deduct charitable donations.
The good thing about donations is that, in most cases, there is no limit on how much you can deduct.
Timing is everything
Donations must be made by the end of the tax year for which you want to claim the deduction. If you put a check dated Dec. 31 in the mail by that day, you're OK. So are donations charged by year's end to your credit card, even if you don't pay the card's bill until the next year.
Check out the charity
Only contributions to IRS-qualified charities are deductible. This means the group meets Uncle Sam's requirements to be classified as a tax-exempt organization. You've probably heard this referred to as 501(c)(3) status, so-called because that is the section of the Internal Revenue Code that governs such groups.
Ask the charity to which you plan to give for information on its tax status. Reputable nonprofits will be more than happy to offer proof.
You also can check out groups via various online databases, such as GuideStar and Charity Navigator, as well as by using the IRS' own online searchable Publication 78.
Know your limits
Remember that phrase "in most cases, there is no limit on how much you can deduct" mentioned earlier in connection with itemizing? That applies to most people, but for some very generous folks, there are deduction limits.
Most public charities are known as 50% organizations. They get this name because donors' deductions are limited to 50% of their adjusted gross income. For example, if your adjusted income is $50,000 and you give $30,000 to a qualifying nonprofit, you can't claim your full charitable gift in the tax year in which you give. You can only claim up to $25,000.
However, the other $5,000 isn't lost. You can claim the excess donation amount on your next year's tax return. You have up to five years' of "rollovers" to claim the full charitable gift.advertisement
Most of us won't have to worry about this limit, but in case you come into some unexpected cash and want to share it with a charity, take into account the deduction limit.
There also are 20% and 30% donation deduction limits for specific gifts and the groups -- typically private charities -- that receive them. These rules are more complicated, so you should talk to a tax professional if you're planning a gift that falls into this category.
Make sure goods are in good shape
In addition to cash gifts -- which in the IRS' eyes include not only currency, but also the previously mentioned donations made with checks and credit cards -- you might donate household goods. In this case, you get to count the item's fair market value as your donation amount.
Donated personal property, however, must be in good or better shape for your deduction to count. This rule was enacted several years ago to prevent people from giving away worthless items to charities and then claiming excessive value amounts as tax deductions.
Special rules also apply to donations of motor vehicles. No longer can you simply deduct the Kelley Blue Book price of the auto. You need to find out how the charity will use the vehicle and, if the group sells it, what price it received. That will determine how much you can claim.
Get receipts
Regardless of the type of gift, its amount and to which charity you donate it, get a receipt.The IRS actually demands receipts when a donation is more than $250. In some cases, appraisals also are required.
In most cases, the receipts are for your records only, just in case the IRS later has questions about your deduction. If you don't get a receipt or other formal acknowledgement from the charity when you donate, ask for one.
A legitimate tax-exempt organization will have no problem giving you a receipt when you make your donation or later mailing (or e-mailing) one to you.
Now that you know the IRS rules on giving and getting a tax deduction, all you have to do is decide which charities get your year-end donations.