There are a variety of reasons to make a donation to charity. Most times, individuals do it because it feels good. Others may think that any contribution to those less fortunate is a guaranteed benefit on your taxes. Before you part ways with your money, there are important rules you need to follow to ensure that your donation counts.
Itemize Your Deductions
There are a number of requirements to becoming financially independent such as hard work and saving money. If you’ve achieved financial success, you may be fortunate to be able to give back to those in need. To ensure that your donation counts on your taxes, you need to fill out schedule A on your tax return. Keeping good records throughout the year allows you to remember those who you’ve assisted.
You may find a number of causes that are near and dear to your heart. Beyond writing a check, fun functions such as running a charity 5K race directly assists those in need. You could also purchase raffle tickets at a charity auction or attend a musical with the proceeds going toward the organization. To reap a proper tax deduction, you want to find a qualifying organization. If a letter isn’t posed on the charities website, ask for a determination letter by the IRS. You can also search the Internet via the IRS Exempt Organization Select Check. Synagogues, churches and temples are eligible for deductible contributions, even those not on the list.
If you make a contribution to an individual, your deduction won’t qualify. Even if the person is very deserving of the funds. This includes money given to a homeless person or funds collected for a co-worker or family member facing hardships.
Merchandise Must Be in “Good Used Condition”
It’s common for households to go through their personal belongings and search for items no longer in use. Whether you’re offering clothes, shoes, bedding, rugs, appliances or electronics, the items that you’re handing over must be in “good used condition.” You also can only deduce the value of the items if sold to a thrift shop and not the amount of money paid for the belongings. There are sites on the Internet where you can calculate the value approved by the IRS such as bikes, toys, clothing and coffee makers. You’d be surprised at how quickly the items donated can add up.
Ask for a Receipt
Deductions regardless of the amount or payment must be substantiated with a receipt. You can verify the amount given via a cancelled check, money order or credit card receipt. You can also ask the organization for some type of paper receipt with the date, name of organization who received the gift and amount. While you don’t need to provide the paperwork along with your tax return, you do need to have it on-hand in case you’re audited.
Re-assess Your Vehicle Gift
If you think that gifting your vehicle to an organization will garner you a huge deduction, you may want to think twice. In most instances, individuals who have used this method have received far less money than what they got by trading the car in or selling it outright. Per the IRS, you can only deduct the actual selling price agreed by the charity. You’ll also be required to attach a sale statement to your return. If the charity uses your vehicle and doesn’t sell it, you can deduct the fair market value of the car.
Deduct Only Money and Merchandise, Not Time
Money and merchandise aren’t the only ways to help a charity in need. Some people offer up their time through volunteering. But if you’re looking to deduct the hours come tax time, you’re out of luck. The IRS rules state you can’t deduct time spent by assisting others. But you can claim expenses related to your good deeds such as parking, tolls, uniforms, supplies and travel costs.
Giving to others is a wonderful feeling, especially when the organization holds special meaning. But it can also prove beneficial in the form of an income tax deduction. But before you go gifting your funds to various charitable organizations, you want to become familiar with the above contribution rules.