Philanthropy is not only a way to contribute to meaningful causes but also an opportunity to benefit at tax time. That’s right—your generosity can pay off when you file your taxes, provided you follow the IRS’s rules for charitable contributions. Read this quick guide to deducting charitable donations from taxes to learn the right steps to take.
Understanding Qualifiable Charitable Donations
First things first: Not all donations to good causes are deductible. You must contribute to tax-exempt organizations under section 501(c)(3) of the Internal Revenue Code for your donation to be eligible for a tax deduction. These include charities, religious organizations, nonprofit educational institutions, and more. Unfortunately, donations to individuals, political organizations, or candidates do not qualify.
The Importance of Documentation
Keeping a meticulous record is crucial, whether it’s a cash donation or a tangible gift like homeless care kits. Ensure you receive a receipt that includes the date, amount, and organization for any contribution.
You may need a detailed appraisal if the value of property or goods exceeds a certain threshold. For example, we advise you to obtain a professional appraisal to accurately determine your collection’s worth if you donate a collection of rare comic books, each with a significant market value.
Cash vs. Non-Cash Contributions
While cash contributions are straightforward, non-cash donations such as clothing, books, or furniture require a bit more attention. It’s your responsibility to assess and document your non-cash donation’s fair market value—not necessarily what you paid for them, but what they would sell for in their current condition.
Calculating the Value of Non-Cash Donations
You must itemize your deductions on Schedule A of your Form 1040 if you want to claim charitable contributions. You can estimate the fair market value of your non-cash donations by comparing the items to similar goods or using valuation guides provided by many charitable organizations.
Annual Deduction Limit
An important thing to know about deducting charitable donations from taxes is that there’s a cap on how much you can deduct. You can deduct contributions up to 60 percent of your adjusted gross income (AGI) for monetary donations and up to 30 percent for donations of appreciated assets.
Resources To Help Navigate Charitable Giving
Navigating the tax implications of charitable giving can be complex, but you don’t have to go it alone. The IRS offers guidance on charitable contributions, including Publication 526 (Charitable Contributions) and Publication 561 (Determining the Value of Donated Property).
Consider consulting a tax professional for individualized advice and help you understand how your charitable donations affect your tax situation and how to plan your contributions to maximize the benefits.