All About Tax-Deductible Charitable Contributions

In the face of the high cost of living and natural disasters, such as hurricanes, many individuals are currently experiencing challenging times. There are numerous ways to aid those in need during these difficult times, whether you have already donated to charity or are contemplating doing so. However, you may have questions regarding which charitable donations are eligible for tax deductions.

What is a Tax-Deductible Charitable Contribution?

When contributing to a 501(c)(3) organization by volunteering, providing monetary funds, or non-cash items, your donation may qualify as a tax-deductible charitable contribution. However, it is essential to ensure that the organization you are donating to is a registered 501(c)(3) organization before making a contribution. You can verify an organization's 501(c)(3) status by checking the IRS website. To qualify for tax deductions, it is important to give to a registered non-profit organization, not to an individual, which functions as a legitimate charity.

Who Can Deduct a Charitable Donation?

Not everyone can claim a tax deduction for their charitable donations. The COVID relief provisions that enabled close to 90% of taxpayers to deduct some of their cash charitable contributions have expired. The tax benefits for donating to charity have now reverted to the pre-COVID relief tax law, which requires taxpayers to claim itemized deductions. If you donate cash and non-cash items to a 501(c)(3) organization and you can itemize your deductions, you can deduct the fair market value of your donations. Homeowners with mortgage interest are typically able to itemize their deductions. Donating may still be beneficial even if your itemized deductions are near the standard deduction of $12,950 for single filers and $25,900 for those who are married and file jointly, as it may help you surpass the standard deduction and deduct more, ultimately saving you money on your taxes.

Donating Cash vs. Donating Items

When making a monetary donation to a charity, determining your potential deduction is a straightforward process. The amount you contributed is the amount you can claim as a deduction. However, when donating household items such as furniture or clothing, the calculation can be more complicated. In such cases, you can only claim a deduction for the fair market value of the donated items, which can be estimated based on what they might fetch at a thrift store.

Regardless of whether you donate cash or items, it is important to obtain a receipt. A receipt is mandatory if you donate an item worth more than $250. You need not worry about determining the accurate value of your donations since software like TurboTax ItsDeductible can assist you in accurately valuing and tracking your donations throughout the year. Furthermore, you can easily import your donations into your tax return at tax-time using this software.

Did You Receive Anything from a Charity?

If you receive something of value in exchange for your donation, such as a gift card or a meal, your tax deduction will only apply to the amount that exceeds the value of what you received. For instance, if you donate $150 to a charity and they provide you with a meal valued at $50, you can only claim a tax deduction of $100.

The good news is that most charitable organizations will provide you with a summary of the tax-deductible amount of your contribution when they send you a thank-you letter for your donation. This way, you can easily determine the amount you can claim as a deduction on your tax return.

When to Claim Your Deductions

You can claim a tax deduction for your charitable donations in the year you make the contribution and when the donation is delivered to the organization, regardless of whether you volunteer your time, give cash, non-cash goods, or make donations by charging on a credit card. However, some donation methods, such as via text message, check, or credit card, may cause confusion as to when the donation is considered deductible.

When making a donation via check, the contribution is considered delivered on the date you mailed the check. Contributions via text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. For donations made through a credit card, contributions charged to your bank credit card are deductible in the year you make the charge.

It is important to note that a donation made on the last day of the year can still result in tax savings and help those in need. A contribution made in late December can provide tax savings on a return that is due in less than four months. On the other hand, a donation made in January cannot be claimed until the following year.

While potential tax savings should not be the only factor affecting your charitable giving, it is wise to consider appropriate charitable tax planning. After all, the more you save on your donations, the more you can give to support your favorite causes.

It is essential to ensure that you donate to legitimate charities, especially in the wake of recent natural disasters and the start of the holiday season. Fraudsters may set up fake charities to deceive people into donating. Always verify that you are donating to a legitimate 501(c)(3) charitable organization, and you can use the IRS Tax Exempt Organization tool to check charitable organizations.

This post is for informational uses only and is not legal, business, or tax advice. Please consult with an attorney, business advisor, or accountant with concepts and ideas referenced in this post. Balance Pro assumes no liability for actions taken in reliance upon the information contained in this article.

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