Throughout the year almost everyone makes some form of charitable donations, whether it is a donation of clothing to Goodwill or a cash donation to an organization. One of the several benefits in making a charitable donation is lowering your tax bill. However, the IRS has a few requirements for a charitable contribution to be deductible.
One requirement specifies that the donation must be made to a qualified 501(c)(3) organization. A few examples of qualified organizations are churches, nonprofit volunteer fire departments, and Goodwill. A few items that you might think are deductible but are not deductible include Go Fund Me pages, a jar at a local restaurant to support someone or an event, political campaigns, police departments, for-profit fire departments, and making personal property available for use. For example, if you own a beach rental house and you donate a week to a local charity, you are not able to deduct the amount you would have received for that week had you rented rather than donating it. The value of your volunteer time is also not deductible; however, the miles that are driven to volunteer activities are deductible if they are properly documented. Additionally, the contribution must be paid in cash or other property before the end of the current tax year.
It is also important to document the value of the goods that are being donated such as Goodwill items and stocks. Donations of household items to organizations like Goodwill or Salvation Army are not valued at their original retail price but rather their current market value. This website https://goodwillnne.org/donate/donation-value-guide/ is a helpful tool in valuing items that are donated to Goodwill. Stocks are also valued at their current fair market value. This could be very beneficial if the value of the stock has appreciated since it was purchased, allowing for a greater deduction. If you donate to an organization and receive something in return, you can only deduct the amount in excess over what you received. For example, if you donate $500 to a school raffle and win a $300 raffle basket, you’re only able to deduct $200 ($500-$300).
You can also donate up to $100,000 from an IRA to a qualified organization. Instead of claiming a charitable deduction, if the amount is paid directly from the IRA to the organization, the taxable portion of the IRA is simply reduced by the amount donated. As an added benefit, the amount donated still counts as part of your required minimum distributions.
The IRS also has documentation requirements. For any contribution of $250 or more, you must obtain a written acknowledgment from the organization stating the amount of cash and description of any property that was contributed. If the value of the donation is less than $250, you still need documentation such as a receipt or check stub showing the date and amount of the donation.
Taking the time to ensure the organization is qualified and to gather the proper documentation may be a time-consuming task; however, it’s worth the extra time to make sure your donation is deductible. Charitable donations are a great way to decrease your tax liability while helping your community.
Have questions about your charitable contributions? Contact JPS.
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