Giving your time and/or money to a cause is a wonderful thing. You’re making the world a better place, one person or community at a time – and the Federal Government agrees. Whether it’s old furniture for The Salvation Army, volunteering at a homeless shelter, or donating through FirstGiving, Uncle Sam encourages charitable giving through income tax deductions. The rules, however, can seem complex. If you find yourself driven to give to those in need, and want to take advantage of tax benefits, follow these seven tips.
1. All Donations Must Be Made to IRS-Approved Organizations
Be careful who you give to, the IRS only accepts donations made to qualifying organizations. You can find out which charities qualify by utilizing the Exempt Organization Select Check Tool on the IRS website. Donations to specific individuals are not tax-deductible.
2. You Can’t Deduct Your Contributions Unless You Itemize
You must itemize your deductions in order to write off your charitable contributions. If you use an online tax preparation program – such as H&R Block, TaxACT, or TurboTax – just answer the prompts and let the program take you to the appropriate page. If you file your return manually, however, you’re going to have a few more forms to fill out.
3. Value Your Non-Cash Donations Effectively
Don’t get greedy. Either value your items according to thrift shop resale worth or use an online calculator. If you use tax prep software, it can assist you in valuation, as well. Invest in a professional appraisal for expensive items and keep a modest mindset for everything else. You never want to have to justify a $100 donation for an old computer printer.
4. Maintain Accurate Records
The IRS requires that you have a receipt or statement for any individual contribution of $250 or more – but you do not need records for donations under that threshold. If your total non-cash donations come to more than $500 you need to complete and submit Form 8283.
Regardless of the amount, though, keep bulletproof records of your donations. These should include the name of the organization, the date of the donation, and a detailed explanation of the items given (if not cash). Hang onto your credit card statements and cancelled checks as well.
5. Your Time Is Not Tax Deductible
Let’s say you donate a week’s worth of time at a soup kitchen, for example. The value of that time is not tax-deductible even though you could have been out earning money. However, if you spend money during that time on transportation, such as gas or parking fees, those expenses are deductible.
6. There Are Limits to What You Can Write Off
If you give a lot, don’t assume that it can all be written off, even if you follow the above guidelines. In many cases you are limited to deducting 50% of your adjusted gross income, although this percentage may be lower depending on the type of organization you donate to.
7. Donations Are Not Fully Tax Deductible if You Receive Something in Return
The rules are designed to encourage you to donate. That means that if you benefit from making a particular contribution, Uncle Sam thinks that should factor into the tax implications. If, for example, you give $500 in cash or goods to a qualified organization and receive a gift in return valued at $50, you can only take a $450 deduction on your return.
If you still have any questions or concerns, consult IRS publication 526 or call 1-800-829-1040, Monday through Friday from 7 a.m. to 7 p.m. local time. Taking deductions for your charitable contributions helps those in need and can significantly reduce your tax costs – just be sure to approach the process properly. The last thing you want to do is raise a red flag and have to deal with an audit.
What tips do you have for taking tax deductions on charitable contributions?
Nick Owens is an online editor who covers tax management, lifestyle, and volunteerism.