Wondering about what charitable tax deductions are and how they can benefit you? Here’s what you need to know about these deductions.
What are Charitable Tax Deductions?
A charitable tax deduction is something you can receive when you donate to a qualifying organization. What you donate can be itemized on your tax return, and that, in turn, can reduce your taxable income. Most people give cash to a charity in part because it’s easy to report. But you can also donate items such as a car or stock portfolio. Donating financial assets that have increased in value can help you avoid capital gains tax and qualify for an income tax deduction.
How Do They Work?
To claim tax deductions for charitable donations, you must have donated to an IRS-recognized charity and received nothing in return. You can deduct charitable tax donations when you itemize your deductions.
Typically, you can deduct up to 60% of your adjusted gross income via charitable donations. Though, depending on the type of contribution and the organization, you may be limited to 20%, 30%, or 50%. Contributions that exceed the limit can carry over to the next tax year. Be aware the limit applies to all donations you make throughout the year, no matter how many organizations you donate to.
Rules for Donating to Charities
To make sure you get this done right, here are some rules to follow.
Donate to a Qualifying Organization
As we mentioned previously in this blog article, you need to make sure you donate to qualified organizations to be eligible for charitable tax deductions. This is a crucial rule. This means you need to ensure your donation goes to a tax-exempt organization that advertises as a tax-exempt, nonprofit, or 501(c)(3) organization.
So, a community foundation that’s registered as a nonprofit operating for the benefit of educational, child welfare, or animal welfare purposes, religious organizations such as a church, and war veteran organizations formed in the US are among some examples of organizations that you can donate to qualify for a tax deduction. Donations to political parties, campaigns, or individual political candidates are not eligible for tax deductions. If you want to search for an organization’s eligibility to receive tax-deductible contributions, use the IRS’s search tool on their website.
With any tax matter, it’s essential to keep records of your charitable donations. You’ll want to keep records no matter the amount of your donation, but the larger your donation, the more detailed your records need to be.
For smaller donations, a record of your bank statement or canceled check will do fine. But if your donation was cash or noncash worth more than $250, the IRS requires you to get a written letter of acknowledgment from the charity. It needs to include the amount of cash you donated and whether you received anything from the charity in exchange for the donation. Make sure you receive the letter of acknowledgment by the date you file your taxes for the year you made the contribution.
Keep the Deadline in Mind
Don’t forget about the deadline. For your donations to be considered tax-deductible when you file, they must have been made by the end of that corresponding tax year. So, for example, if you make a donation on Dec. 31, 2023, you will be able to claim it on your 2023 tax return. If you donate on Jan 1, 2024, that will be claimed on your 2024 tax return.
How to Claim a Donation as a Tax Deduction
There are certain steps you’ll need to take on your tax return to claim a tax-deductible donation.
You can list specific deductions by itemizing them on tax form Schedule A. You will likely need to provide proof, such as the amount donated and details about the qualifying organization (this is when the records come in handy).
Often, taxes and figuring out how to claim tax deductions can be tricky. To help you claim tax-deductible donations without having to research and get confused by the mountains of tax information, reach out to a tax professional. They can help determine your tax situation and help you claim your charitable tax deductions (as well as other tax deductions, if applicable).
Whether you need help with charitable tax deductions or other tax services, our tax-matter advisors are ready to lend a hand.
Gaylor Tax Services is Here for You
Whether you need help with charitable tax deductions or other tax services, our tax-matter advisors are ready to lend a hand. At Gaylor Tax Services, we can assist you with tax compliance, tax filing, tax planning, and even support you in case of an audit. Our experts are here to answer your questions year-round, so do not hesitate to contact us. We are located in Phoenix, Arizona, but can assist you anywhere in the state.