How do charitable donations affect my taxes?
After researching a charitable organization and deciding where to give your money, you should also consider how the charitable donation will affect your taxes. Charitable donations are a popular tax write-off, but make sure you understand what can be deducted and how to properly assess the value of your donation.
Is the charity a tax-exempt organization?
First, check that the organization is tax-exempt 501(c)(3) organization by using the IRS’s online tool. Donations to 501(c)(3) tax-exempt organizations can be tax-deductible to the donor.
What contributions can you deduct?
Charitable contributions of money or property to exempt charitable organizations can be deducted as long as you do not receive anything in return .
- Example: a $50 cash donation to a tax-exempt organization would qualify.
If you receive something in return for your donation, then you must deduct the value of what you received.
- Example, if you purchase a ticket to a charity’s gala for $250 and the value of the meal and entertainment is worth $100, then you can only deduct $150.
What contributions are you unable to deduct?
The IRS outlines the types of contributions that are not deductible.
- You cannot get a deduction if you donate to a specific person.
- You cannot get a deduction if you donate to a nonqualified organization.
- You cannot get a deduction if you receive a benefit (or expect to receive a benefit) in exchange for your contribution.
Publication 526 also includes additional examples.
How do I place a value on property I donate?
Did you donate the garage sale left-overs to a charity…maybe to Goodwill or Salvation Army?
You can deduct the fair market value of any property donated to an exempt charity on the date of the contribution. This means the price the property would sell at in the open market.
When can I deduct the amount of my charitable contribution?
Charitable contributions must be deducted in the year the contribution is made. Most of the time, this is fairly easy to determine. The date you mail a check or the date your credit card is charged is the date you will use to determine when to report the deduction.
What records do I need
to keep in regards to charitable deductions?
The types of records you need to keep depend on the type of charitable deductions.
1. Cash contributions
Cash gifts are those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction. You should keep the following records for cash contributions:
- A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include a canceled check, a bank or credit union statement, or a credit card statement.
- A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.
Cash contributions of $250 and over require specific documentation. You must have a written acknowledgment from the tax-exempt organization that lists the amount of the contribution and preferably, the date of the contribution. For more details, see Publication 526 .
Payroll deductions require that you keep these records as well:
- A pay stub, Form W-2, or other document furnished by your employer that shows the date and amount of the contribution, and
- A pledge card or other document prepared by or for the qualified organization that shows the name of the organization.
2. Non-cash contributions. Recordkeeping requirements vary by the value of the contribution. We will address all of those requirements in another post. You can check Publication 526 for specifics based on the amount of the contribution.
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The Cullinane Law Group works exclusively with do-gooders. The firm sets up and maintains strong and legally compliant nonprofits that have solid bases for long-term success. We provide risk management and offer practical solutions for sound governance. We help nonprofits, foundations, religious organizations, and social entrepreneurs throughout the United States who seek to create positive change.
About Mollie Cullinane
Mollie Cullinane is an attorney who works with nonprofits and social enterprises of all sizes, from emerging local charities, professional athletes' foundations, and international organizations. She is a Texas Super Lawyer – Nonprofit Law (Thomson Reuters, 2012 - 2014). She also serves as a professor at Texas Lutheran University, teaching “Social Entrepreneurship and Nonprofits." LEARN MORE