The IRS has become much more stringent about the charitable deduction, so it pays to know the requirements and to collect your paperwork throughout the year, rather than waiting for tax time.
Here's what you should know about the tax benefits of giving to charity. Be sure to consult your own tax adviser about your specific tax situation.
1. How Does the Income Tax Deduction for a Charitable Donation Work?
If you itemize deductions on your tax return, you may be able to take an income tax deduction for a gift to a qualified charitable organization. That is a big "if" however. All taxpayers are entitled to a standard deduction, and it is only when you exceed that deduction that itemizing pays off.
The standard deduction varies and changes each year, so check it for the year you're filing taxes for.
2. When Can a Charitable Contribution Deduction be Taken?
Your donation to a qualified charity is deductible the same year in which it is made. The contribution is considered paid when you put the check in the mail, or when it is charged to your credit card (not when you pay the credit card company). Make sure that your donation is made by December 31 the year in which you plan to claim a deduction.
Most charitable organizations qualify for tax-deductible donations, but not all. Look for the 501(c)(3) designation to be absolutely sure.
Some organizations, such as churches or very small nonprofits, are not required to register as IRS tax-exempt charities in order to receive tax-deductible donations.
The charity will tell you if your donation is tax deductible, plus you can search for it at the IRS website.
Charitable tax deductions are not allowed for donations to an individual, a foreign government, foreign charities, political parties, political campaigns, social welfare organizations, commonly known as 501(c)(4), or political action committees.
5. Is There a Limit on How Much I Can Donate and Still Get A Tax Deduction?
There are no limits on charitable contributions for most taxpayers. Most of us will be able to deduct cash contributions in full up to 50% of our adjusted gross income. There are other limitations that come into play should you make significant contributions of property or appreciated capital gains. If you fall into these categories, be sure to consult with your tax adviser to see if your deductions will be limited.
6. How Do I Handle Deductions for Non-Cash Donations to a Charity?
There are rules for non-cash donations such as property or outdated clothing, household furnishings, or office equipment.
For property owned for more than a year, the deduction is usually equal to the property's fair market value.
Donated goods must be in "good condition or better," according to the IRS. You must have a receipt for the goods from the charity to claim a deduction. If you donate non-cash items with a total value of more than $500, you must file IRS Form 8283 with your return. You may need a qualified appraisal if you donate an item or a group of items with a value of more than $5,000.
Making a car donation to a worthy charity seems like a good move, but, unfortunately, car donation is an area of charity that is rife with fraud and misleading information.
To receive a deduction for the donation of a car, truck, boat, airplane or any other vehicle, the item must be worth more than $500, and you must have a written acknowledgement from the charity.
Check out our suggestions for a happy outcome for you, the charity, and your car.
8. Can I Take a Deduction for My Volunteer Work?
No, you can't deduct the value of your time spent on charitable work as a charitable donation, but you can deduct your out-of-pocket costs such as mileage, currently set at 14 cents per mile. Other possible deductions for expenses include your travel to volunteer abroad or even in another state.
9. What Documentation Is Required for Deductions for Charitable Contributions?
To claim a deduction for cash, check, or other monetary gift, you must have a written confirmation from the charity that contains the name of the organization, the date of the contribution and amount of the contribution. Charities are only required to provide written acknowledgement for donations over $250, but most do provide some sort of receipt no matter what size of donation you provide.
For contributions less than $250, if a receipt has not been provided, a cancelled check or a bank record will suffice. You cannot deduct casual donations that you drop into a charity's collection box or bucket without a receipt.
If you receive some goods or services in exchange for your donation, the charity must specify the value of those goods or services. You can only deduct the amount of your donation that is above that value. The paperwork from the charitable organization should spell out what is deductible.
If you text a donation to any charity, use your phone bill as your receipt. It should list the date, amount donated and the name of the charity. When you text-to-give to a charitable organization, the nonprofit does not receive information about who you are...you are anonymous. Therefore, you won't receive a receipt from that charity. The charge for the donation appears on your phone bill.
11. Is the Pledge I Made on a Crowdfunding Site Tax Deductible?
There are many crowdfunding websites now. Some, like Kickstarter, are primarily for raising money for a business, product or project, although nonprofits are not excluded.
Look for some verification of the tax status of the organization that is raising funds. For instance, Indiegogo shows a badge for qualified nonprofits that says "Verified Nonprofit Campaign." Obviously, if the campaign is for an individual, business, or product, there would be no charitable tax deduction.