Every year towards the end of the year you hear about wealthy individuals making extremely generous contributions to charitable foundations. While these donations certainly help the foundations receiving the money, they also benefit the individual donating the funds.
You are able to claim charitable donations as a tax deduction when filing your taxes. However, it takes a certain amount of planning and strategy in order for the donation to make a noticeable difference on your tax bill.
In this article, we will cover how to plan your charitable giving to make a noticeable difference on your tax bill and take you through everything that you need to have in order to take a deduction.
How Much Can I Deduct for Charitable Donations?
If you are giving a cash donation you are able to deduct up to 100% of your yearly adjusted gross income for charitable donations.
In most instances, you can take up to 60% of your adjusted gross income as a deduction for non-cash donations. However, it could be limited further based on the type of donation that you are making. IRS Publication 526 has the details if you are looking for a specific type of donation.
How Much Can I Deduct Without Having to Itemize My Donations?
If you are looking to avoid itemizing your charitable donations, then you will need to stay under $300 per person in charitable donations. This means that if you are filing jointly you can claim up to $600 without deductions.
How Much Do I Need to Donate to Make a Difference in My Taxes?
In order for your donations to make a difference on your tax deductions, the total anticipated deductions needs to exceed more than the standard deduction. In 2021 the standard deductions are:
|Married filing jointly||$25,100|
|Head of Household||$18,800|
When you complete your itemized deduction, you will be able to include your charitable donation. The total value of your donation will be reduced from your taxable income.
Which Organizations Qualify for a Tax Deduction?
In order to receive a tax deduction for a donation made to a charity, it has to be a tax-exempt organization with 501(c)(3) status or a private institution. Organizations can be considered a non-profit without this status so it’s important to check before donating. Some commonly qualified organizations include:
- Religious organizations
- The Red Cross
- Nonprofit educational organizations
- Volunteer firefighting organizations
Before donating you can use the IRS Tax Exempt Organization Search to verify an organization’s status. As a last resort, you can also ask the charity that you are donating to how much of the donation will be tax-deductible.
Can I Take a Tax Deduction for Items the I Donate?
Yes! If you donate an item to a qualifying organization that is in good condition you can claim it as a deduction on your taxes. The organization will assess the fair market value of the item, which is the amount that you may list on your tax deduction.
Can I Take a Tax Deduction for Volunteering?
You are not able to take a tax deduction for the time or service provided. However, you are able to take a deduction for some costs incurred as a result of volunteering. Common deductions include:
- Expenses directly and solely connected to volunteering
- Mileage for driving to and from the volunteer site, to make a donation, or while volunteering.
You can either deduct the actual expenses you spent on gas or take the standard mileage deduction, which is 14 cents/mile in 2021.
Before claiming any of the above-mentioned deductions make sure that you were not reimbursed by the organization for these costs. If you were, they are not tax-deductible.
What Do I Need in Order to Claim a Deduction?
You should always document any charitable donation that you intend on claiming a deduction for. You will need the following documents:
- Bank or credit card statement
- Receipt from the charity (needs to have the date, name of the organization, and amount of the donation)
- A copy of your W-2 if making donations directly from your paycheck.
You won’t need to submit this documentation to the IRS, but it’s important to have it in case you get audited.
Cash or Property Donations Worth More Than $250
If you give more than $250 you will need to receive a letter of acknowledgment from the organization that you donated to. The letter must include the following items:
- The amount of cash that was donated
- If you received anything in exchange for the donation
- The estimated value of goods or services received in exchange
You need to have received the letter prior to the date that you file your taxes.
Deducting $500 or More Worth of Non-Cash Donations
If you deduct $500 or more worth of non-cash donations you will need to complete a Form 8283. If the value of the items is worth more than $5,000 then you will also need to attach an appraisal.
Give Appreciated Non-Cash Assets
Another great way to save on taxes through donations is through the donation of appreciated non-cash assets. Not only do avoid paying a capital gains tax on the earnings, but you get the bonus of deducting the donation from your income.
Should I Get Help to Maximize My Deductions?
All the laws surrounding what can count as a deduction can get rather confusing. The process can be extremely time-consuming, especially if you are choosing to do an itemized deduction instead of taking the standard deduction. Contact us to help walk you through the process and to ensure that you are getting the most value out of your charitable donation deductions.