When you decide to make a charitable donation, the tax benefits of doing so are probably not at the top of your priority list. More likely, you are donating to the charity because you believe in the cause, and you want to help people in need. This is a great motivation of course, but the usual tax benefits are a nice bonus, as well.
Most donations to charity are tax deductible. That does not mean, however, that all donations to charity are deductible, or that you will be able to take the deduction. As seems to always be the case when talking taxes, the details are important.
Let’s take a closer look at the topic of charitable deductions.
Picking the Right Charity
If you would like to be able to deduct your donation on your taxes at year’s end, you will need to make sure that you are donating to a qualified charity. To confirm this fact, look for the IRS determination letter for a given organization. Most large charities will make this information available on their website, so it should be quick and easy to verify. When giving to a smaller charity, you may have to do a bit more research. If you fail to take this step, you may find out later that your donation is not actually deductible.
Only for Those Who Itemize
It is important to understand that you will only be able to take a deduction for your charitable donations if you itemize your return. If instead, you simply take the standard deduction, there will be no savings realized as a result of your giving. Of course, the decision of whether or not to itemize is a personal one, based on a number of factors. If you need help making this choice, you’ll want to speak to your tax preparer or accountant before filing.
You Need Proof
This one probably goes without saying, but you should be able to prove that you gave money (or other donations of value) to a charity. If you do your giving with something like a debit or credit card, this won’t be a problem. If you give in cash, however, it might be harder to trace your donations. So, each time you make a cash donation, ask for a receipt from the charity. Most are equipped to meet this request without any trouble, as it is common practice. It is not going to be necessary to prove your giving when you file your return, but it may be necessary in the case of an audit.
There Are Limits – Which Probably Won’t Come into Play
It should be noted that there are limits with regard to how much you can deduct when it comes to charitable donations. As you might expect, these limits are quite high and are unlikely to come into play for the vast majority of individuals. Unless you are giving a significant portion of your annual earnings away to charity, you aren’t going to bump into this issue. If you do give away large sums regularly, check in with your accountant on any issues you may have with this deduction.
Check the Date
If you do make a tax-deductible charitable donation, be sure that you take the deduction in the appropriate tax year. For instance, if you donated in 2017, the deduction should be seen on your 2017 return. One potential mistake is to take a deduction made early in 2018 on your 2017 taxes, assuming you haven’t yet filed. Remember, everything is based on the calendar year in terms of your income taxes, and charitable deductions are no different.
Making a donation to a charity which also allows you to take a deduction on your taxes is a win-win situation. The key to success here is doing your homework ahead of time, making sure you are donating to a charity recognized by the IRS, and keeping records of all your giving. As long as you follow those simple rules, and you check with your tax preparer if you have any questions, you should be able to save on your taxes and help those in need at the same time.
