Charitable donations are not only a chance to make a difference: They’re also a great way to reduce your tax burden for the year.
However, just because you're feeling generous doesn’t guarantee a tax deduction for charitable giving. As with everything in tax law, it's important to follow the rules. With that in mind, here are a few tips for making your charitable donation count.
Itemize - In order to claim a charitable deduction on your tax return, you must itemize your deductions. You report itemized deductions on Schedule A on your federal form 1040 using lines 16-19.
Choose carefully - Only donations to qualified charitable organizations are deductible. If you’re not sure whether an organization is qualified, ask to see their letter from the Internal Revenue Service (IRS).
Get a receipt - No matter what the amount, cash deductions must be substantiated by a bank record such as a canceled check or credit card receipt, or in writing from the organization. The receipt must include the date, the amount and the organization that received the donation.
Donate appreciated assets - Donating property that has appreciated in value, like stock, can result in a double benefit. Not only can you deduct the fair market value of the property (so long as you've owned it for at least one year), you avoid paying capital gains tax. Normally, appreciated property is subject to capital gains tax at disposition but there's an exception for donations to charitable organizations
You can't deduct volunteer hours. The IRS does not allow a charitable deduction for the value of your time if you are volunteering. The good news is that most out of pocket expenses relating to volunteering are deductible so long as they're not reimbursed or considered personal in nature.
Watch the calendar - Contributions are deductible in the year made. To make it count during the tax year, gifts must be made by December 31. That doesn't always mean cash out of your account. For example, credit card charges - even if they're not paid off before the end of the year - are deductible so long as the charge is captured by year end.
If you have questions about your charitable deductions or about your taxes in general, feel free to call Jones & Company CPAs P.A. for help. We can be reached at 727-845-4166.