Tax Tips for Year-End Gifts to Charity
Get a Tax Break for Your Qualified Charitable Contributions
Giving to charity has two major benefits: it helps those who receive it, and it can be claimed as a deduction on your income tax return.
Most donations to legitimate charities can be deducted, making it worthwhile for you to help those who are in need. With 2014 coming to a close, there is still time to increase your tax deductions for the year by giving to charity.
[READ: 7 Year-End Tax Tips]
Before you donate though, there are a few rules to keep in mind to ensure that the gift you give is tax-deductible.
Contributions Must Be Made to a Qualified Charity
Simply donating money or property to a ‘cause’ is not enough for you to qualify for a tax deduction. The organization that you donate to must be classified as a qualified charity under IRS rules.
Qualified charitable organizations are entities that are based in the U.S. (although some Mexican, Canadian, and Israeli charities may qualify) and have been approved for tax-exempt status by the IRS. (Note that churches automatically qualify.)
Types of qualified charities usually include:
• Churches and other religious organizations
• Non-profit charities, such as the Red Cross
• Non-profit educational groups, such as the Boy or Girl Scouts of America, colleges, and museums
• Non-profit volunteer firefighter companies
• Non-profit hospitals or medical facilities
To check if a particular organization is qualified to receive tax-deductible charitable contributions, you can use the IRS’ online tool: Exempt Organizations Select Check.
Types of Charitable Contributions That You Can Deduct
You can claim a tax deduction for money and/or property that you donate to a qualified charity. If you donate property, the amount of your deduction is based on the property’s fair market value at the time of your contribution.
Note that there are certain limitations. In most cases, your deduction for charitable contributions cannot exceed 50% of your AGI (adjusted gross income). But in some cases, income limits of 20%-30% may apply.
Another important rule is that you can only deduct amounts that are above the value you receive. This may apply if you attend a charity event where you receive something in return for your donation (such as a catered dinner or raffle prize). In cases like this, you can only deduct the amount of your donation that exceeds the benefit you received. For example, if you pay $100 for a ticket to a charity dinner, and the ticket’s fair market value is $40, then you can deduct $60 as a charitable contribution.
Proof of Your Donations
In order to claim a deduction for your charitable contributions, you must keep records as proof of your donations. This may be in the form of receipts, bank records, or a written statement from the charity. Your records should include the name of the charitable organization, the date of your donation, and the amount of your donation.
For cash contributions over $250, you must provide proof of any benefit that you received in return. For noncash contributions over $500, you must complete IRS Form 8283 (Noncash Charitable Contributions) and file it with your income tax return. If you make a contribution of noncash property that’s worth over $5,000, you will need to fill out Form 8283 and get a qualified appraisal.
[READ: Tax Breaks for Charity Work]
Giving to charity is certainly admirable, plus it can offer you substantial tax savings. There are certain circumstances that may limit how much you can deduct for charitable contributions, so consider checking your eligibility with a tax professional before claiming this deduction on your tax return.
For more information, please see IRS Publication 526 (Charitable Contributions).