Charitable Deductions

Charitable Deductions: Donations can reduce tax liability

November 28th is known as #GivingTuesday or Tuesday of generosity. Therefore, it’s important to know how this impacts your taxes. If you give money or property to a non-profit or tax-exempt charity before December 31, you will likely be able to take a charitable deductions for the tax year.

Accordingly, taxpayers who want to save tax as much as possible before the end of the year should consider making charitable contributions to charities. By making a donation, the taxpayer can reduce his or her tax liability from charitable deductions.

Charitable Deductions
#GivingTuesday

Only donations made to eligible organizations are eligible as charitable deductions

A tool called Exempt Organizations Select Check is available on IRS.gov. The Select Check is an online database that lists most eligible charities. Eligible charities include churches, synagogues, temples, mosques and government agencies, whether or not found in the database.

Itemize to claim your charitable deductions

Charitable deductions arising from donations to charities are not available for individuals who choose the standard deduction. Importantly, tax preparation software usually warns taxpayers about the options for tax savings if the total itemized deductions exceed the standard deduction. As a result, retaining a professional to conduct an analysis of your tax return to determine how to maximize your giving. Furthermore, you could also consider gifting appreciated stock and claim a deduction for the fair market value of the stock, without selling it and incurring a tax liability. Also, you could consider a donor-advised fund.

Get proof of monetary donations

In most cases, the charitable organization should provide written documentation of the amount and date of any monetary donation. Monetary donations can include cash, checks, electronic funds transfer, credit card, and payroll deduction. Taxpayers who choose payroll deductions should retain a pay stub, Form W-2, or other proof showing the total amount withheld from your paycheck for charitable donations, along with a receipt showing the name of the organization .

Donations of property

Deduct the fair market value of donations of clothing and other household items. Clothing and household items must be in good or excellent condition to be deductible.

Those who make donations should receive a written statement of the organization for all gifts worth $250 or more. Hence, they should include a description of the donated items. Special rules apply to cars, boats and other property donations.

Take into account any benefits you receive for your donation

It is possible that people who make donations and receive something in return have to reduce the deduction. Hence, these benefits may include merchandise, meals, tickets to events or other goods and services. Thus, proof of the donation must state whether the organization gave goods and services by making the donation, along with a description and estimated value of those goods and/or services.

Seniors with IRA retirement accounts have another way to donate

Every year, people age 70½ or older with IRA retirement accounts may transfer up to $100,000 tax-free to an eligible charity. Especially relevant, the transfer counts as a required minimum distribution for the year. To qualify, direct your IRA administrator to perform a Qualified Charitable Distribution or QCD, which directly transfers the funds directly to the eligible charity.

Keep good records

Consequently, it is important that you retain records related to your charitable contribution. The larger the gift, the more documentation you should keep to establish the deduction.