How Giving to Charity Can Improve This Year's Taxes

Donating money or goods to charitable organizations is a good way for individuals and businesses to give back to the community. A secondary benefit of giving to charity is that it can help to reduce your tax bill this coming April because most of these contributions are tax-deductible. Your donation must meet certain criteria, and you must also itemize deductions on your return with Form 1040 Schedule A to deduct them from your taxable income. Here are some other ways giving back can actually earn you more on your taxes this year.

Rules for Claiming Donations to Charity on your Taxes

Not all charitable donations are tax deductible. You must give a donation of property or cash as opposed to a promise to donate in the future. Your donation must also go to a charity with 501(c)(3) tax-exempt status, although churches and other religious organizations do not need to have this status. Contributions to individuals, political parties, professional associations, labor unions, foreign governments or to for-profit schools or hospitals are not tax deductible. Individuals taking the standard deduction instead of itemizing on their taxes cannot utilize charitable donations as tax deductions. The donation must be paid by December 31st of that year. 

Non-Cash Donations

Donations of other things such as food or clothing can also be deducted based on fair market value. The actual cost spent for items such as groceries can be documented with a receipt. Ensure you receive a written receipt of what you’ve donated for record-keeping purposes. Giving to a donation box for donation clothes are a convenient drop-off option, but you won’t always receive a receipt so keep that in mind. 

Record Keeping

It is your responsibility to keep track of how much, when, and where each donation was made. Acknowledgment letters from the charity, canceled checks, and bank statements all serve as adequate proof of your donation. It is essential to receive a written acknowledgment from the organization if the amount of your donation is $250 or more. The IRS can disallow the donation if you don’t have proof if you’re audited. 

Deduction Limits

The annual limit for the amount you can deduct from your taxes is a percentage of your income. You can claim up to 50 percent of your adjusted gross annual income if you donate to a public charity. Property deductions can go up to 30 percent and capital gains up to 20 percent of your gross income. Consult a tax advisor if you have complex circumstances. 

Giving to charity helps give back to your community, but there’s no harm in benefitting from your contribution. Keep track of eligible donations you make and don’t forget to include them when you file your taxes when April comes around.