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Making a donation is a great way to help people in need, and it could benefit you too. Here’s what you need to know about the charitable donation tax deduction.
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Giving Tuesday is just around the corner, and while this day isn’t as well known as Black Friday or Cyber Monday, it also promises savings of a sort. This day encourages people to donate to charities on the Tuesday after Thanksgiving — and possibly earn some valuable tax breaks in the process. Here are five things you need to know if you plan to claim a charitable donation tax credit this year.
1. Your donation must be to a qualifying tax-exempt organization
To claim a tax deduction, you must donate to a tax-exempt organization. The IRS maintains a search tool where you can verify a charity’s tax-exempt status before donating to it. You can search by name, Employer Identification Number (EIN), or location.
It’s always a good idea to check this, especially if you’re working with a charity you’ve never donated to before. Charity scams are also popular at this time of year, so make sure you’re not giving your money away to the wrong person.
2. You need to keep records
You aren’t required to submit proof of your donation to claim a tax deduction for it, but you need that record somewhere in your files. If the IRS chooses to audit you and you don’t have proof, it can disallow the deduction.
The type of proof you need depends on the type and amount of your donation. Here’s a brief overview:
Cash donations under $250: A bank statement, canceled check, or credit card statement is enough.Cash donations of $250 or more: You need a written acknowledgement of the donation from the charity that states the amount and date of the donation.Noncash donations under $500: You need a receipt from the charity stating what was donated and when.Noncash donations worth $500 to $5,000: You’ll need to fill out Form 8283 and submit it with your taxes.Noncash donations worth $5,000 or more: You’ll need to fill out Form 8283 and have a qualified appraisal of the donated items.Out-of-pocket expenses related to volunteering: You must keep the receipts for these expenses.Mileage: You must keep logs of your mileage, including the dates, destinations, and purpose of your trips.
If you have any questions about what kind of proof you need to claim your tax deduction, reach out to a tax professional before donating.
3. You have to itemize your deductions
Most tax filers use the standard deduction. As the name implies, this is a standard amount that everyone of your tax-filing status is allowed to deduct from their taxes. But you can also itemize deductions if you choose. For some, this could result in greater savings than claiming the standard deduction, though this isn’t true for most people.
You must itemize your deductions if you hope to claim a tax break for your charitable donations. If you opt for the standard deduction, you won’t receive any financial reward for your charity.
4. You have to subtract the cost of any items you receive in return
If you donate money to a charity and that charity gives you a T-shirt in return, then you must reduce your charitable donation tax deduction by the value of that T-shirt. So if you gave $50 and the T-shirt was worth $15, your deduction would only be worth $35.
For this reason, it’s important to keep records of any items you receive in exchange for your donation, as well as the items you donate. If you have any questions about the value of any items you receive, ask the charity for more information.
5. You can only claim deductions on up to 60% of your adjusted gross income (AGI)
This rule isn’t relevant to you unless you plan to donate a substantial amount of your annual income. But if you’re feeling ultra-generous, it’s crucial to keep track of how your donations stack up to your income for the year.
You cannot claim a tax deduction for cash donations that’s worth more than 60% of your adjusted gross income (AGI) for the year. And for non-cash donations, the maximum tax deduction is 50% of your AGI.
Even if you don’t wind up with a tax deduction, donating to charity is still a worthwhile cause. If you have a little extra cash in your budget, unused items, or even a car that you think could benefit those in need in your community, consider donating it on Giving Tuesday.
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