‘Tis the season to be jolly and it’s also the time of year when people are reminded to give back to those in need. Making a donation of cash, toys, clothing or other items to a church or other charitable organization is a great way to share the holiday spirit and it can add up to big savings at tax time. The IRS has specific guidelines in place when it comes to deducting charitable donations. The following tips can help you to make the most of holiday giving.
Choosing a Charity
The IRS only allows you to deduct contributions made to a qualifying charity. Generally, this means any organization that operates for religious, educational, charitable, scientific or literary purposes. This may include a church, a nonprofit hospital, your local volunteer Fire Department or national organizations like the Red Cross. Groups that work to prevent cruelty or abuse towards animals or children also qualify. You can also deduct donations made to veterans’ groups, such as the VFW, or fraternal associations that operate under the lodge system.
The IRS does not allow you to claim a deduction for donations made to individuals or to nonqualified organizations. These include civic or social organizations, chambers of commerce, business leagues, country clubs, labor unions and political organizations or candidates. If you’re not sure whether or not a particular charity is eligible, you can use the Exempt Organizations Select Check tool
to verify their tax-exempt status.
What Holiday Gifts Are Deductible
The IRS allows you to deduct contributions of money or property that you give to a qualified charitable organization. Holiday donations are deductible up to the amount for which you don’t receive a benefit. For example, you purchase a $50 ticket to a holiday dinner hosted by a local church as part of a fundraising driver. In terms of the church’s expense to host the dinner, the actual cost breaks down to $15 per person. Since you received a benefit in the form of the dinner, you could only deduct the $35 difference between what you paid for the ticket and its actual value.
Documenting Holiday Giving
In order to make sure you get credit for holiday gifts, you’ll need to document donations of cash or property. For cash contributions of less than $250, you can use a bank statement, credit card statement, pay stub or receipt to verify the donation. If you give $250 or more, you’ll need a written statement from the organization you made the donation to acknowledging the contribution.
If you’re making noncash donations of household goods, clothing, books, toys or other property, the type of documentation you’ll need will depend on the value of the items. For donations of less than $250, you’ll need a receipt from the organization which specifies the date of the donation and includes a description of what was donated. For donations of property up to $500, the receipt should also include a good faith estimate of the value of the items. To deduct noncash donations ranging from $500 to $5,000, you’ll need to keep records of when you obtained the item, how you got it and its approximate cost basis. The IRS requires a professional appraisal for items valued at $5,000 or more.
Tax Reporting for Charitable Donations
To claim a deduction for holiday donations, you’ll need to itemize using Form 1040, Schedule A. If you’re claiming a deduction for noncash donations valued at $500 or more, you’ll also need to complete and attach Form 8283
. Generally, the IRS allows you to deduct donations up to 50% of your adjusted gross income, with some exceptions. A 30% limit applies to gifts made to certain charitable organizations, including veterans’ organizations, fraternal societies, nonprofit cemeteries and certain private foundations. A 20% cap applies to gifts of capital gain property made to or for the use of qualified charitable organizations. If your charitable contributions exceed the adjusted gross income limit, the IRS allows you to carry over the difference to future tax years. The time frame for carryover contributions is limited to the first five tax years following the initial deduction.
When You Can’t Give Cash
There are other ways to give back to charity that don’t involve money and may still yield a tax deduction. The IRS allows you to deduct unreimbursed expenses that you incur as a result of volunteering your time. Deductible expenses include things like uniforms, transportation expenses and travel expenses if your volunteer work requires you to be away from home. If you’re short on cash this holiday season, volunteering just a few hours of your time is a great way to help others and potentially improve your bottom line.