This year has been hard on many people, and with the holidays coming up you might be considering charitable donations. On top of making a difference in the world, you can earn a tax deduction when you donate to charity. But in order to claim that deduction, you must follow certain guidelines precisely. Here’s what you need to know about making charitable donations in accordance with IRS rules.
- You can only claim charitable donation deductions if you file an itemized tax return.
- Donations to individuals, no matter how deserving, do not count as charitable donations.
- Sorry, donations of your time do not count for tax deduction purposes. However, some related expenses can be deducted, such as the cost of transportation, parking, supplies, or other items that are not reimbursed or intended for personal use.
- You can’t claim charitable donations for just any organization. Churches, synagogues, mosques, and temples are automatically included as acceptable organizations. Otherwise, the group must be approved by the IRS to receive tax-deductible donations.
- You can only claim the current market value of donated items, not what you originally paid for them. Of course, some items do appreciate over time, so it can be a good idea to get an appraisal for things like antiques, art, and collectibles. You can also donate stocks that have appreciated in value, counting their current market value, and possibly avoid capital gains taxes at the same time.
- Correctly deduct the value of any incentives or gifts that you receive in return for your donation. You can only claim the amount of the donation that exceeds the value of that item.
- Certain limits do apply to charitable donation deductions. If you consider donating a significant amount (more than 20 percent of your adjusted gross income) work closely with a tax professional so that you know what to expect from your deduction.
- You should save a receipt as proof of your donation.
- Consider donating via payroll deduction. It’s easy, and your pay stub or W-2 will serve as proof of your donation.
- Donations must be made by December 31 of this year, if you want to itemize them on this year’s tax return next spring.
If you’re wondering how charitable donations fit into your overall financial plan, give us a call and we’ll discuss the issue in more detail.