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What to Know About Tax Deductions for Charitable Donations This Winter
As the holidays approach, more and more people are giving to those less fortunate. It’s a great time to be altruistic and share your abundance with others. What many people don’t realize is that making charitable donations this winter can and will count for your tax deductions in the calendar year they’re made. That’s great news for those looking to receive a little extra help before 2020 rolls in.
When you make a charitable donation, just make sure that you read and adhere to the laws and regulations set in place by the IRS. To help you get the most tax benefits from your generosity, we’ve put together an article on what to know about tax deductions for charitable donations this winter.
What Organizations Qualify for Charitable Donations?
In order for your charitable donation to count toward tax deductions, you have to make sure that the organization you give to is qualified. There are a lot of organizations that claim charitable opportunity, but the IRS doesn’t recognize all of them under tax law. Make sure that your donation goes toward a non-profit organization that is legally considered a 501(c)(3) and always keep a record of your contribution. Gifts to your friends or family don’t count as charitable donations. Neither do gifts made toward political campaigns, contributions to foreign governments, charitable donations made to for-profit schools or hospitals, and any contribution made to labor unions or business associations.
Instead, you need to find an organization that is operated strictly for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals. Other organizations that qualify for charitable donations include a war veterans’ organization, a nonprofit volunteer fire company, or some donations to federal, state, or local governments. To learn more about organizations that qualify, or to check to see if a specific organization makes the cut, check the IRS website or contact a certified public accountant today.
The next thing to keep in mind is that if you want your deductions for charitable donations to count, you need to itemize your tax deductions.
How to Itemize Charitable Donations
When you don’t itemize your tax return, your charitable deduction won’t give you any tax benefits. However, due to changes in tax law, you need to make a decision regarding whether you take a standard deduction or itemize your deductions. In some situations, standard deductions can give you a better return. However, if you make frequent charitable donations or donations of large value, you will increase your overall deductions with an itemized approach. This area of charitable donations can get tricky, so you will need to do further research prior to filing your taxes or hire a professional. We recommend opting for a professional to make sure that you get the most out of your efforts.
Limitations on Deductions
While it would be great if you could make charitable donations and completely eradicate any taxes owed, it’s not possible. However, charitable contributions are capped fairly high depending on the charity type that you choose to donate to. For the most part, you can deduct contributions up to 60% of your adjusted gross income. Some organizations, like private foundations, are limited to 30% so make sure you know all of the details before making your donation.
If you’re donating your time by volunteering somewhere, you can’t actually deduct the value of your time. You can, however, deduct any expenses that you incur during your time volunteering—travel costs, mileage, etc.
How Charitable Donations Change Your Taxes?
Since charitable donations are caped at percentages of your income, people in higher tax brackets will save more over time. For example, if two donors in different tax brackets make a $10,000 donation, they’ll save different amounts. The one in the higher tax bracket will end up saving more. This can be tricky when balancing your taxes, so always make sure you understand your current tax bracket and how your donations will change taxes prior to committing to large monetary contributions.
Always Maintain Proper Documentation
Regardless of who you’re donating to and why, you need to maintain proper documentation for your records. Always include the name of the organization you’re donating to along with the date and donation amount. Ask the organization for a receipt or written letter that acknowledges your donation to ensure you have everything you need come tax season. Without a written acknowledgement, the IRS may not recognize larger donations as valid. For any donation of $250 or more, you will need to file a written acknowledgement.
If you’re making non-cash donations, you need to have documentation that declares the fair market value of your goods. This is especially important if you’re donating vehicles. If the fair market value is high ($500 or more), always make sure you get written documentation at the time of the donation. You’ll need to fill out a different form for non-cash donations, which can be found here.
To be fully prepared and avoid missing any documentation, consider taking pictures of your donations. Remember that food and groceries can be claimed as a charitable donation as long as you get signed acknowledgement during the process. If you have any questions or concerns about the documentation you need to successfully receive tax deductions for charitable donations, contact a professional.
Charitable Donations Made This Winter
If you’ve gone all year without making any charitable donations, now is the time to act. Every charitable donation made is deductible in whatever year that it’s paid. If you give a pledge to donate $X in 2019, but pay in 2020, the donation is deductible in 2020. Luckily, winter is a great time for giving to those in need, so find a few qualified organizations that speak to your heart and make some donations! You can effectively make donations up until December 31st, as long as the check is dated and put in the mail before January 1st. If you make a contribution on your credit card in 2019, but don’t pay it off in full until 2020, your donation is still 100% valid for 2019. Again, just make sure that you receive the proper documentation and that your organization is one that qualifies.
Hiring a Professional
If you make a substantial amount of charitable donations and want to ensure that you’re getting the best tax benefits possible, we recommend hiring a professional. A certified tax coach or public accountant, like the ones at Del Real Tax Group, will work with you throughout the year to identify legitimate charitable organizations, properly document contributions, and itemize your tax return so you get more money back in your wallet. Del Real Tax Group is one of a select number of companies to employ a certified tax coach and is dedicated to providing you with comprehensive tax planning services. We work hard to minimize your tax bill so you can enjoy more of your hard earned money, even after you’ve generously donated to organizations in need.
Del Real Tax Group specializes in helping small businesses maximize profits and each of our accountants work to give you personalized service and attention. Since we’re committed to working with small business owners, we’ve developed a very specialized niche that allows us to concentrate on our clientele. Our primary goal is to help you save thousands of dollars in taxes a year! 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