It’s getting close to the end of the year and just as Santa has been checking his list twice, have you been looking at your potential tax deductions? Charitable contributions tax deductions can be a quick way to reduce your tax burden & you are helping a good cause simultaneously! Plus if you are waiting until December to make your donations, numerous charities have “matching challenges” that can double your gift.
How To Claim Charitable Deductions
For your charitable deductions to qualify at tax time, you will have to “itemize” a specific amount of expenses.
Qualifying expenses include:
- Charitable donations to qualified organizations (Will explain in detail in next section)
- Medical and Dental expenses in excess of 7.5% of your Adjusted Gross Income (AGI)
- Deduct qualifying interest or points from a home mortgage
- Other miscellaneous expenses that might related to your profession or loss of property due to theft or weather
Due to the recent tax law changes, it’s more difficult to itemize your Tax Year 2018 tax return. You must have at least this many deductions to file an itemized return:
- Married Filing Jointly: $24,000
- Head of Household: $18,000
- Unmarried: $18,000
- Married Filing Separate: $12,000
Specific to charitable donations, you can deduct up to half of AGI. Any excess can be carried over to the next tax year. If you fall under these circumstances, I recommend reading the applicable IRS documents and talking to an accountant to help keep your tax forms accurate.
My opinion on itemized deductions is why not reduce your tax bill if you are spending the money anyhow. If you cannot itemize, then you should still reasonably donate to charitable causes regardless of earning “extra credit” at tax time.
You Need To Keep Track Of Your Charitable Contributions
Now that we got that brief yet slightly confusing explanation of itemized deductions out of the way, let’s dive into the details about charitable contributions.
First off, the IRS requires documentation for all your contributions. Long gone are the days when you can claim that dollar bill that you put in the offering plate or red kettle without anybody knowing you gave it.
For any donation over $250, written documentation from the charity organization is required. For donations less than $250, proper documentation can consist of the canceled check or written documentation from the organization. If you make a non-cash donation, you will need an itemized receipt or the appropriate tax form.
In my experience, most national organizations will give you a receipt that typically includes your year to date donations in addition to your most recent contribution. Your local church will normally just give you a receipt at the end of the year with the total amount of all your contributions, instead of a receipt for each contribution.
Tip #1: Keep all your receipts in one place. I keep my most recent receipts in a large manila envelope that I also place my other tax documents for the current year in. When I get an updated receipt with the current Year-To-Date contribution total, I throw away the previous one to reduce clutter.
Tip #2: I also keep track of all my contributions on an Excel spreadsheet. I use it to cross-reference the receipts I have to ensure I have them all & they are all accurate.
If you use tax prep software to prepare your income tax forms, they are usually pretty thorough at covering the various itemized deductions that you have probably made throughout the year.
What Charitable Contributions Are Tax Deductible?
If you want to make a qualified donation, you need to make sure the organization is a qualified non-profit organization. That means they are registered as a 501(c)3 non-profit. There are some qualifying classifications, but nearly every charity is a 501(c)3.
Non-qualifying contributions would be to political campaigns, political organizations (i.e. your company’s Good Government Fund), or any transaction where you receive a good or service in return.
You also have to pay attention to partial contributions. For instance, you donate $100 to your charity and they mail you a book. If the “Fair Market Value” of the book is $15, only the remaining $85 is a qualified donation. When I’ve made these types of donations, I will receive a receipt that thanks me for my donation & specifically itemizes qualified & non-qualified donations.
If you are unsure if the organization you are making donations to are tax-deductible, please check with them.
Let’s break drown the different types of contributions you can make into a little more detail:
According to the IRS you can only deduct the cost of gasoline & oil (or 14 cents per mile) if you drive to the volunteering location and items you purchase for the charity.
Can I deduct my time spent for volunteering?
No you cannot claim time spent for your volunteer work. Neither can you claim money spent for personal expenses such as meals or lodging nor can you deduct lost wages as a result of volunteering.
I’m going out on a limb and guessing this is the most common charitable contribution. Cash donations are pretty straightforward. The money donated has to be used for charitable purposes. If you receive anything in return, the fair market value needs to be subtracted from the total contribution.
Just remember that you need proper documentation in case you are audited. The couple dollars you give your child to donate to a cause at church or school cannot legally be claimed unless you receive a receipt.
Clothing & Household Items
Every so often you might donate unused items from your house to Goodwill or your local thrift store instead of having a garage sale. You need an itemized receipt that lists every item donated. The store worker typically won’t give you a receipt of every item donated. It will usually just have a general description like “one box of women’s clothing, 10 cassette tapes, and a set of silverware.”
The same concept can be applied towards your donation if you make a sizable donation to your local food bank.
My one recommendation is to have an exact list of what you donated for your personal records, so you have a precise estimate of what the “Fair Market Value” of your donation is. You can also calculate this value by checking with your local organization to whom you are donating the items.
Planes, Boats, & Automobiles
No doubt you have seen advertisements where you can donate your old vehicle to charity for a tax deduction. If the value of your vehicle or another operable machine that could be part of an 80’s comedy exceeds $500, then you will receive IRS Form 1098-C that will list the date of your donation and the appraised value.
If the vehicle is worth less than $500 and you do not receive a receipt, the value can be estimated in one of two ways.
- Private Party Value according to Kelley Blue Book
- Sale price or Auction price if your vehicle is sold or auctioned off by the non-profit you donated to
Donating Stock Or Mutual Funds
This type of donation can also offset the Capital Gains tax. Cash donations are made from your net income (post-tax). Donating a stock, before you sell it, means the organization gets the stock at face value and you don’t need to pay any capital gains tax. Plus you can deduct the entire amount donated.
If sell the stock before donating the proceeds, you are responsible for paying any gains tax. You can only deduct the proceeds minus the capital gains taxes paid.
Donating Valuable Art or Collectibles
If you have a piece of art, coin collection, jewelry, antiques, or other collectible values over $500 in value you need to have proof that the donated item is worth that much.
You can determine the value of your donation in three separate ways:
- Sales prices of recent items at auction, eBay for instance
- Listing price in a catalog or retail store
- Professional Appraisal
If you are donating art that is valued greater than $20,000, you will need to fill out an additional tax form for the IRS and include a color photograph.
Are You Able To Itemize?
Who knew there were so many different options for charitable contributions tax deductions? Whether or not you can itemize, charities still greatly appreciate any donation they receive.
Growing up, I always heard about the benefits of itemizing. I understood it’s more once I began making a real paycheck & had to make real payments to Uncle Sam, the landlord, and supermarket cashier.
Now that you can file your taxes online with affordable software, it’s easier than ever to see if you can “itemize” and not get bogged down by all the confusing language that is included in the tax forms. Plus certain programs have a real-time calculator that shows how much of a refund (or how much less you need to pay in) when you add the number of charitable contributions you made for the year!
Remember that not every charitable contribution needs to be tax-deductible!
I hope this article has been informative, helpful, and reinforced your giving spirit.
Are you able to itemize on your income taxes? What type of charitable contribution do you make the most?