Your guide to charitable tax deductions

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Your guide to charitable tax deductions

You’re probably already making charitable donations.

In 2014, charitable giving rose over 7% year-over-year to more than $358 billion. That’s an average of almost $3,000 per household, and 72% of total donations came from individuals as opposed to businesses. It’s a good thing to do, and altruism is a reward unto itself.

Tax deductions are also a reward, though, and you can get those for your donations, too.

Charitable tax deductions are great way to save some money while still doing good. Here’s everything you need to get started, from the forms you need to what you’ll be able to deduct.

How it works

We’ve talked about tax deductions and write offs in the past. A lot. Charitable deductions work pretty much the same way: get the right forms and itemize your contributions! You’ll need to include Form 1040 in your tax return and use Schedule A to itemize your deductions in the handily-named "Gifts to Charity" section. Just enter the amount of money you donated and/or the value of items you donated, and that’s pretty much it.

Of course, since this is the IRS and taxes we’re talking about, there’s actually more to do in certain scenarios. If you take a look at Schedule A, you might see this bit:

Schedule A

"If any gift of $250 or more, see instructions. You must attach Form 8283 if over $500."

For gifts that amount to $250 or more (for either cash or non-cash donations), you need a statement from the charity saying how much you gave and whether or not you got anything back in return (if you did, that changes the amount you can deduct – but don’t worry, will come back to that later).

It’s important to note that $250 is for a lump sum donation, not the total number of separate donations. The IRS itself gives a good example: if you donate $25 to your church every week, each weekly donation counts separately, so even though the total for the year would be $1,300, you wouldn’t need to get a statement from the church about what you gave.

As for Form 8283, you’ll need to do that if you’re claiming $500 or more, but keep in mind that it’s only for donations "other than by cash or check" – so donating a car, for example. There’s also an additional section on Form 8283 that you’ll need to fill out if you’re claiming more than $5,000, and you’ll need an appraiser to validate the cost of the donation.

There’s one thing that you’ll need to take care of before you start filling out tax forms, and even before you start donating: making sure that you’re donating to the right places.

Only qualified organizations are eligible for tax deductions when you donate to them. Things like political organizations aren’t eligible, and just because a group is a non-profit doesn’t mean that they’re automatically eligible.

If you want to make absolutely sure you’re going to be able to claim deductions on your charitable donations, use the IRS’ Exempt Organizations (EO) Select Check tool or a third party like Charity Navigator.

What you can claim deductions on

Okay, so that’s how you claim deductions. But what sorts of things can you actually claim?

Donations basically fall into two categories: cash and things.

If you’re giving money to an organization – whether it’s by credit card, PayPal, check, texting, or straight cash – make sure you keep a record of it. This isn’t as cumbersome as it sounds. Bank transactions will be available for pretty much everything except, obviously, cash, but in any case the organization will probably be more than happy to make a record of your donation.

You don’t need to include this information (except, remember, when the donation is over $250 and you have to get a record of it) but it’s good to have in the off chance that you get audited and need to have proof of donations you’re trying to claim. Better safe than sorry!

Getting a deduction amount for cash donations is simple: it’s just the amount you donated. But what do you do when you’re donating things like clothes, furniture, and so on?

You have to use the fair market values of these types of items. The IRS defines that as:

...the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

Essentially, no one feels like they’re getting ripped off. An easy way to figure out the value of an item is to let someone else do it, and luckily organizations like the Salvation Army have done the heaving lifting for you. Using their Donation Value Guide is a great way to get an idea of how much you’ll be able to claim for a variety of items.

Cars fall into a special category when it comes to deductions. We’ve talked about all the ways you can deduct auto costs, and charitable use is a little different.

If a charity is going to keep a donated vehicle – say, a soup kitchen is going to keep a van to make food deliveries – you can deduct the fair market value just like you would with any other item.

But if the charity sells the car, you’re only able to write off they amount that they were able to get for it, even if it was less than the fair market value.

As a side note, you can also use the charitable standard mileage deduction if, instead of donating your car, you use it for charitable purposes like volunteering.

Limits on charitable deductions

You’re supposed to make donations out of the kindness of your heart...and for tax deductions...and also sometimes you get other things, too, like merchandise or tickets to an event.

You can still deduct these donations, but not as much as if you’d just given cash on its own. You can only deduct the amount you pay over the value of the item. For example, if you donate $20 for a charity sandwich, because you’re the type of person who donates money for sandwiches, and the actual value of the sandwich is $5, you can write off $15 rather than $20.

You can also typically only claim deductions on up to 50% of your income. So if you make $50,000 a year and donated $30,000 to an organization, you could only claim $25,000 in deductions. However, you can roll over additional donations for up to 5 years so you could add that extra $5,000 to your deductions for the next tax year. Some types of organizations of a deduction limit of only 20-30%, but the EO Select Check will let you know the limits of different organizations.

And speaking of EO Select Check, remember how only certain groups and organizations are eligible for deductible donations? Well, you also can’t deduct contributions to individuals. That means those GoFundMe pages helping someone pay their medical bills won’t cut it.

Finally, there are limits on how much you can deduct if your income is over a certain amount depending on your filing status:

  • $154,950 if married filing separately

  • $258,250 if single

  • $284,050 if head of household

  • $309,900 if married filing jointly

Have you made any donations this year? If you did, it probably felt good – and be sure to keep track of your donations so you’ll feel just as good when you file your taxes!

Image: Thomas Hawk