Donating to charity can provide us with a sense of purpose and fulfillment. While helping worthy organizations and individuals is the true reason most people choose to give to charity, donations allow you to enjoy some charity from the U.S. government as well. Here's a guide to making the most of charitable-giving tax breaks from the federal government.
Decide whether to itemize deductions
Before we get into details like keeping receipts and tracking donations, we must discuss whether you should itemize your deductions or take the standard Internal Revenue Service (IRS) deduction. When you calculate your taxes, you may subtract either itemized (i.e., listed and detailed) deductions or a standard deduction from your adjusted gross income. You should choose whichever method allows you to pay less in taxes overall.
The standard deduction amount varies by tax year and your personal information, but in 2017, the IRS allows single taxpayers to deduct $6,350 and married taxpayers to deduct $12,700. To decide whether it makes sense to itemize or use the standard deduction, first add up your deductions. If you're a parent, click here to learn which deductions you may qualify for.
If your intended deductions total is smaller than your allowed standard deduction, you'll want to use the standard deduction and will not need receipts of proof of activities like donations.
If your intended deductions total is higher than the standard deduction, you'll need evidence of the itemized deductions you're claiming and you'll need to file your taxes with schedule A, the itemized deductions worksheet.
As often happens, high-income earners do not receive as great a benefit from charitable tax deductions. Currently, the deduction is reduced for single taxpayers who earn more than $261,500 a year and married taxpayers who earn more than $313,800 that year.
Related reading: Don't Miss Out on Deducting Medical Expenses from Your Taxes
Guidelines when claiming donations as deductions
When making deductions for donations, keep these rules in mind:
The IRS allows you to deduct donations made to tax-exempt organizations only.
Cash or other donations must have been made by December 31 of the tax year for which you're filing.
You can deduct cash donations valued at up to 50% of your adjusted gross income. Non-cash property donations must not exceed 30% of your adjusted gross income.
If you are extraordinarily generous one year and make cash donations that exceed 50% or non-cash donations that exceed 30% of your adjusted gross income, you can claim the remainder of your donations on subsequent tax returns, for up to five years.
When donating clothing, household goods, or other non-cash personal property, you must list the fair market or resale value as your deduction amount.
If you donate a vehicle, you cannot use your judgment or book value of the vehicle as the listed value unless the charity keeps your vehicle for its own use. If the charity chooses to sell your donated vehicle, you must list the sale price.
If you donate jewelry, furniture, or other property worth more than $500, you must list it on form 8283. Claiming donated property worth more than $5,000 requires an independent appraiser's valuation.
If you make a donation to receive something of value in return, you must subtract the value you received from your listed donation amount. For example, if you donate $250 and receive event tickets worth $100, you may claim a $150 donation.
Always ask for a receipt
When dealing with tax issues, it's good to document everything. When you list a charitable donation worth more than $250, the IRS requires a receipt, so make sure to ask for a receipt every time you donate and keep thorough records.
If you make donations during the year, it's nice to get something in return! Pay attention to these tips to maximize your charitable donation deductions. For additional guidance, click here to contact a financial advisor.