The holiday season is in full swing and it’s that time of year when everyone is encouraged to help others in need. Giving back can make a positive impact in your community and it can also pay off big at tax time in the form of a tax deduction. If you’re planning to do some charitable giving before the new year, here are a few tax tips to keep in mind.
There are plenty of charities to choose from but if you’re planning to write-off what you give, you’ll need to make sure that you’re donating to an eligible organization. In order to get the deduction, you’ll need to pick a charity that has tax-exempt 501(c)(3) status with the IRS or is a religious organization that’s not required to obtain tax-exempt status.
You can use the Exempt Organizations Select Check Tool on the IRS website to search for qualifying organizations by name, Employer Identification Number or location. The tool will also tell you if an organization has had its tax-exempt status automatically revoked.
Aside from checking out a charity’s tax-exempt status, it’s also a good idea to do a little research to make sure that what you give will be put to good use. The holidays are a prime time for scammers who try and solicit donations to phony charities from unsuspecting victims. Before you hand over your cash, check out resources like Charity Navigator or the Better Business Bureau Wise Giving Alliance, which provide background information on hundreds of charities nationwide.
If you don’t have some type of written record of your donation you won’t be able to include it on your taxes so it’s important to document everything you give. The IRS has very specific rules on the types of records you need to keep, depending on the type of donation you make.
For cash donations, you can use a bank statement, canceled check or credit card statement as long as it includes the name of the charity, the date of the contribution and the amount. You should also get a receipt from the organization showing the date and amount of your donation. If you donated more than $250, you’ll also need a written acknowledgment from the charity that shows how much you contributed and whether you received any goods or services in return.
If you’re donating clothing, household items or other goods you’ll need a written receipt from the organization you’re giving them to. The receipt should include the charity’s name and address as well as a description of what was donated, including their estimated value. It’s also a good idea to keep a record of when you bought the items you’re donating and what you paid. If you’re donating something worth $5,000 or more, you’ll also need to get a professional appraisal.
Don’t forget that you can also claim a deduction for expenses related to volunteer service, which is great if you can only afford to give your time those in need. The types of things you may be able to deduct include mileage, overnight travel if you’re volunteering away from home and the cost of uniforms you had to purchase. Just make sure to keep a travel log and receipts for any out-of-pocket expenses you had to pay.
The IRS limits how much of your charitable donations you can deduct each year. Generally, you can deduct donations equaling up to 50% of your income when you give to churches, religious organizations, hospitals, educational organizations, publicly supported charities, and private foundations. Deductions for donations to certain types of private charities may be capped at either 20 or 30 percent.
The other guideline you need to keep in mind is that the IRS requires you to itemize in order to get a deduction for charitable giving. If you normally claim the standard deduction, you’ll need to run the numbers to figure out whether itemizing will give you a bigger payoff at tax time.
Giving to others at the holidays or any time of the year can do your heart and your wallet good. Knowing what the rules are for deducting your donations can ensure that you don’t miss out on any tax benefits.
This post was published on December 10, 2013
