The people on the street who stop you and ask you for donations to places like Planned Parenthood, Greenpeace, and the ACLU often inform you that your donation is tax deductible as a way to persuade you to give on the spot. But writing off these donations isn’t as simple as they make it sound. Before you go cutting checks to every non-profit that strikes your fancy and expecting a tax break, consider the following questions:
Are you taking more than the standard deduction?
The first thing you have to figure out is whether you’re tax deduction expenses add up to more than the standard deduction. The 2011 standard deductions are:
|$11,600||Married Filing Jointly|
|$8,500||Head of Household|
|$5,800||Married Filing Separately|
Unless you are taking more than the standard deduction, itemizing your deduction (meaning listing all charitable donations and other tax-deductible expenditures, such as mortgage interest or health care costs) does not make sense. So if you are not donating a large chunk of your income, and/or have multiple deductible expenses, the charitable donations may not help you come tax time.
If you think your deductible expenses and your charitable donations will surpass the standard deduction, what steps should you take then?
- If you’re going to itemize your charitable donations, be sure to keep records of every donation! For contributions that are less than $250, a simple receipt from the organization will suffice. If you give more than $500, you need to prove your good heartedness with a letter from the organization that specifies the amount you gave. If your donation wasn’t money, but something like clothes or a car, the letter they give you will reflect this, but the letter does not have to give an estimated amount for your gift. If your non-cash contributions are valued above $5,000, you’ll need to fill out Form 8283. Generally, the IRS expects you will donate no more than 3% of your income. If you exceed that, everything must be documented quite thoroughly.
- Make sure the charity you’re considering giving to is eligible to receive tax-deductible contributions. To check whether a non-profit’s donations can be tax-exempt, use the IRS’s Exempt Organization Select Check tool. Check frequently– the tax-exempt status of non-profits can change, and the IRS updates its data annually.
- If you want to maximize your contributions, keep in mind there are lots of things you can deduct. For instance, the gas in your car if you are volunteering, or the entire cost of a vacation that was spent primarily volunteering (think Habitat for Humanity or a church mission).
- Also, if you’re trying to maximize contributions, think about all of the things you can donate. You don’t need to focus on cash gifts. You can also donate works of art, fine wine, clothes, etc.
At the end of the day, some questions are best answered by a professional. Some of the limitations are very confusing, especially if you are in a higher income bracket, and/or the high contributor bracket. Before you get that checkbook and start writing big checks in the hope that your taxes will disappear, consult with a professional, read up on IRS rules and regulations, and of course, document everything.
Charitable donation image via Shutterstock