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3 things to know about tax deductions on charitable contributions
Donating to charities is a great opportunity to give back to the community and set an example for the people around you, especially kids. Apart from generating good vibes, an added advantage of charitable donations is that they can help you save on taxes. One of the best parts about making charitable donations is that the Internal Revenue Service considers cash as well as noncash contributions such as clothing, household items, and even vehicles. If this is your first time claiming a tax deduction on a charitable donation, don’t worry, we have got you covered! Here are the three main things you should know before claiming tax deductions on charitable contributions.
Pick a qualifying charitable organization
To be considered for a deduction, all charities should be made to tax-exempt entities. While donating, you can check the 501(c)(3) tax-exempt status of charitable organizations using the verification tool offered by the Internal Revenue Service’s official website. Additionally, inquire with the charitable organization as to how much of the contribution is tax-deductible. In most cases, you can deduct approximately 50% of the AGI (adjusted gross income) in the form of donations. You might be restricted to deduct 20% to 30% if you donate to certain private foundations.
Organizations such as the Church or other forms of religious establishments are not mandated to get a 501(c)(3) status. Apart from religious organizations, non-profit volunteer fire companies and trusts are also regarded to be qualified charities. If your contributions surpass the income limit, a process known as carryover will be implemented. In such a procedure, the IRS pushes the tax deductions on charitable offerings. The carryover process can last for 5 years, depending on how big the charitable donation is.
Ensure that you record all the contributions
It is of utmost significance that you document all the charitable contributions you make. For instance, if you make a cash contribution, you should save the receipt from the charitable organization that comprises details like the amount and date. A bank or a credit statement and a canceled check also come under the qualifying documentation. On the other hand, if you made a contribution using an automatic deduction through an employer, save your W-2 copies or pay stubs confirming the donation status.
If you are making cash or noncash offerings that exceed the value of $250, you will need to get an acknowledgment letter from the charity. This acknowledgment letter should include information such as the amount of the cash donation made or the estimated worth of the noncash items, and whether you received any kind of goods and services in exchange for the donation made. Similarly, if the contribution is above $5,000, you will also need to get the item valued from a certified appraiser to prove its worth. If you plan to deduct $500 or more, you will need to fill out Form 8283.
Consider the lesser-known tax deductions on charitable contributions
The Internal Revenue Service doesn’t allow charitable deductions in the form of service and time. However, you can deduct the expenses you incurred while volunteering for a charity. These costs should be exclusively and directly connected to your volunteer work. Likewise, these should not be reimbursed by the charity.
For example, your vehicle’s gas spent on your volunteer work can be considered as a tax deduction. These can be deducted using the standard mileage deduction, or you can submit the gas mileage receipts. For 2018, the IRS will allow you to deduct 14 cents per mile if it’s used for a charitable cause. Therefore, if you plan to make tax deductions on your gas mileage, ensure that you keep the receipts.
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