Guide to Tax Deduction for Charitable Donations
Living a charitable lifestyle has the capacity to improve so many others’ lives. Donating time allows you to serve through your presence, giving your possessions helps you provide recipients’ basic needs, and offering money allows for a flexible expression of your kindness.
Apart from how it benefits other people, understanding the full effect of donating can motivate you to continue engaging with charitable causes into the future. Donating promotes your personal character development and helps you find meaning through the good you do. In addition, donation expenses are deductible from your year’s taxes, so giving has related financial benefits. Knowing that you can receive money back at the end of the year may inspire more giving once you understand how the process works. If you’re interested in getting a fuller picture, read this guide to tax deduction for charitable donations.
Document Your Donations
A fundamental tip for tax deductions is to document every donation you make. Make sure you get a receipt from the organization you donate to. This is important for verifying that you have donated the items that you end up claiming. If your donation is monetary, make sure you keep bank or credit card statements that specifically list your donations. Identifying what expenses are donations early (when you donate) saves you from having to hunt them down later when you’re trying to record your total deduction amount.
Consult a Donation Fair Market Value Guide
You only need to record a final dollar amount on your Schedule A form, but it’s important for your calculations to consult a guide to the value of commonly donated items such as clothes or electronics. The Salvation Army Fair Market Value guide exhaustively lists many things you may donate. Here are price ranges for some commonly donated items.
- Shirt: $2 to $6
- Pants: $2 to $12
- Shoes: $3 to $9
- Coat: $5 to $21
- Blanket: $3 to $16
- Bakeware: $1 to $3
- Kitchen utensils: $0.50 to $2
- Microwave: $10 to $50
- End table: $10 to $52
- Coffee table: $16 to $67
- Television: $78 to $233
Make Sure You Deduct Donations to Only a 501(c)(3)
It’s important to donate to a trusted place that needs your contribution. Many organizations deserve your attention, but those filed under section 501(c)(3) are the only tax-exempt organizations affiliated with the IRS. When documenting your donations, be sure to deduct donations given to only 501(c)(3) registered organizations.
Itemize Your Deductions
How It Works
The reason you go about this documentation is to itemize everything you’ve given. Itemization may sound intimidating, but the principle is simple. Essentially, the government allocates a standard deduction for tax filers. For 2019 single filers, that deduction is $12,200, and this doubles to $24,400 for married joint filers. A 2019 head of household has a $18,350 standard deduction. If your charitable donations—your money and your possessions given—and other qualifying deductions add up to more than the amount of your standard deduction, you would receive more money back when doing your taxes.
What It Includes
Your “other qualifying deductions,” apart from your charitable giving, include several varied expenses. Among them are sales and property taxes, medical expenses, mortgage and investment interest, work expenses (including education), and a few additional, less common expenses such as theft victimization costs. If, when combined with your charitable giving, your end total is greater than your deduction, it may be worth it to go forward with itemizing.
What Are the Limits to Itemizing?
Though itemizing isn’t too convoluted, there are crucial limitations to understand before going through the process.
Adjusted Gross Income Limit
One restriction is you can only recover 60 percent of your adjusted gross income (AGI). The IRS defines AGI as your total gross income minus your itemized deduction and exemptions total. For example, if a single filer earned $100,000 gross in a year and donated $60,000 in itemizable donations (with no exemptions), their AGI is $40,000. Meanwhile, because their itemized deductions are $60,000, they cannot receive all their itemized funds back. The max amount they can recover is 60 percent of their $40,000 AGI, which ends up being $24,000.
Fortunately, though you cannot gain back all your deductions, the amount of money you don’t receive back ($36,000 in this case) is transferable to the following year’s taxes. Carryover or carryforward are two names for this transfer.
Time and Cost of Itemizing
Admittedly, itemizing is more time intensive. Also, there are costs to itemizing your taxes. Ensure it’s clearly worth the time and money you’ll invest documenting your expenses and using a more sophisticated tax software program before itemizing. You may save a small amount of money, but make sure you don’t sacrifice too much time in the process.
You Can Deduct Volunteer Costs
Another tip for tax deduction for charitable donations is to deduct the costs you incur when volunteering. Though your time isn’t tax deductible, your gas consumed traveling between volunteer locations is. Be sure to document these as well as donations to maximize your refund.
You’ll Need an Appraisal for High-Value Donations
Items worth more than $5,000 require a professional appraisal in order to validate your claimed product valuation. This applies to single donated items and to many items of like kind. A credentialed appraiser must appraise these donations. Donations that do not require an appraisal include publicly traded stocks and cars. You receive a deduction of $500 or your car’s fair market value, whichever is less, if it sells for less than $500. Otherwise, you receive the gross amount it sold for.
With this knowledge of itemized deductions and their benefits in hand, you can reconsider your giving practices. Now that you understand how donating can be financially feasible, it’s possible to up your giving and commit to itemizing your gifts on your taxes. If you’re contemplating this, consider partnering with Backpacks USA and give any of their wholesale school or shelter supplies to people in need. One specific way you can help is by donating bulk kids toys to a local women’s shelter. There are many children who spend time in these shelters with their mothers, and a new toy would brighten their time spent there. Whether you donate toys, money, or clothes to a cause, know that the items you can deduct on your taxes go a long way toward improving others’ lives.