Ah yes. It’s tax time again. Time for all of us to figure out how much we must give to our Uncle Sam so he’ll leave us alone for another year (well… not really). Fact is, if we give to a more WORTHY cause than our Uncle during the year, we are able to declare that amount for tax deductions. Here’s the scoop:
Donations to a qualified, tax-exempt charitable organization are tax deductible expenses. These donations can reduce your taxable income and lower your tax bill. Not everyone will be able to deduct their charitable contributions, however. You will need to itemize your tax deductions in order to claim any charity.
“You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions.” (IRS Publication 78)
Taxpayers are required to keep excellent records of their charitable contributions. Under the Pension Protection Act, you must keep written records of all cash donations. Your records must indicate the name of the charitable organization, the date of your contribution, and the amount your contribution. Canceled checks work well as a written record, since the name of the charity, the date of the gift, and the amount of the gift will all be recorded on the check. Bank statements showing a gift paid by debit card and credit card statements showing a gift paid by credit card are also contain these same elements needed for your records.
Charitable organizations will often provide donors with a written letter acknowledging the gift or with a receipt for the donation. These acknowledgment letters should also be kept with your tax records. If a tax return is audited, the IRS can disallow charitable donations of $250 or more if you don’t have the written acknowledgement from the charity that documents your gift. The IRS advises, “If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions” (from Publication 526).
Non-Cash Contributions of Property
Contributions of property (other than cash) are subject to strict record keeping and substantiation rules. You must be able to substantiate the fair market value of the goods or property you donated, plus keep any written acknowledgments you receive from the charity.
Limits on the Charitable Contribution Deduction
Your charitable contribution tax deduction may be limited. There are limits specific to charitable contributions, and there are general limits on itemized deductions.
50%, 30%, and 20% Limits on Charitable Contributions
- Generally, you can deduct cash contributions in full up to 50% of your adjusted gross income.
- Generally, you can deduct property contributions in full up to 30% of your adjusted gross income.
- Generally, you can deduct contributions of appreciated capital gains assets in full up to 20% of your adjusted gross income.
Charitable contributions in excess of these limits can be carried over to the following tax year. The excess contributions can be carried over for a maximum of five years.
- 12 Most Bizarre Tax Deductions (turbotax.intuit.com)
- IRS Tips on How to Avoid Audit on Charitable Donations (getirshelp.com)