Making a donation is an incredible way to help the community and set an example for your family and friends. An added advantage of donating to charities is that they enable you to secure tax deductions. Fortunately, both cash and noncash contributions are eligible for a tax break. If this is your first time donating to a charity and you are not well acquainted with the know-how of landing tax savings, fret not!
Points to remember before donating
- Choose a qualifying charity
The contributions you make will only qualify if you donate to a charity that carries a tax-exempt status. Before donating, do verify the 501(c)(3) status of the charity. You can confirm this with the help of online resources, such as the IRS Exempt Organizations Select Check tool.
Typically, you can deduct almost half of the AGI (adjusted gross income) in the form of charitable contributions. However, you might be only able to deduct 20% to 30% if you donate to a private foundation. Church and other forms of religious entities aren’t mandated by the IRS to possess the 501(c)(3) status. Apart from religious institutions, non-profit and volunteer fire organizations and trusts are automatically considered to be qualified charities.
- Document all the donations
No matter how small, it is crucial that you maintain the records of all the donations you make. For example, if you make a cash contribution, you should save the receipt from the charity that includes information like its amount and date. Likewise, a bank or credit statement and a canceled check can also be submitted as proof. If you have made the donation through an automatic deduction via an employer, you should save pay stubs or copies of W-2, which can act as proof too.
If you donate to charity with cash or items worth $250, you will need to get an acknowledgment letter from the charitable organization. Similarly, if the item donated is worth over $5,000, you will require to get the item appraised from a professional to corroborate its value. Charitable donations that exceed the income limit will be deducted through a process known as carryover, where the tax returns will be cleared by the IRS in the following year.
- Give a shot to lesser-known tax deductions
Under the IRS regulations, a charity in the form of service and time isn’t considered to be eligible. However, there is a loophole which suggests that you can deduct the incurred costs while volunteering for a charitable cause. These expenses should be strictly associated with the volunteer work you did and should not involve any personal or family costs. Additionally, these costs shouldn’t be previously compensated by the charitable organization. For instance, the gas/fuel spent while volunteering will qualify as a tax deduction. These expenses can be claimed by either using the standard mileage deduction or submitting the gas receipts.