Charitable Donations and Tax Benefits

Charitable DonationsIt’s that time of the year again, and we’re not talking about the holidays.

It’s time to make charitable donations to those organizations you feel most passionate about. While your primary motivation to donate to charity should be altruism, we also think you should know that great tax benefits exist for those who give.

Charities and non-profit organizations receive many donations in the fourth-quarter as companies and individuals are looking for tax deductions before the close of year-end.  However, there are rules in place which dictate to where and how much is allowed to be tax deductible.  In this article, we will outline the gift of giving and some benefits and rules you should know before writing that check.

To start, in order to be tax deductible, a donation must go to a qualified charity, which includes a very wide-range of organizations, such as human service organizations, churches and religious organizations, tax-exempt educational institutions, tax-exempt hospitals and medical research organizations, museums, etc.  Exclusions exclude labor unions, chambers of commerce, and political groups.

Next, it is important to note that a contribution to a qualified charity is deductible in the year that it is given/paid.  Putting a check in the mail to a charity constitutes payment.  A contribution made on a credit card is deductible the year it is charged to the credit card, even if the payment to the credit card company is made the following year.  On a similar note, the simplest way to make a charitable gift is with cash, this includes checks and credit cards.

Regarding limits to how much you can deduct, you can receive a deduction for donations of up to 50% of your adjusted gross income.  Keep in mind that a donation of 51%+ would be very high.  For most people, the limits on charitable contributions don’t apply.  However, if a taxpayer does exceed the 50% limit, the excess amount can be carried over for five years for tax deduction purposes.

Donors may also consider making charitable gifts of appreciated stock to a charity instead in cash.  This allows the donor to avoid paying the capital gain on the sale of investment.  Contributions of stocks and other capital gain property cannot exceed 30% of the taxpayer’s adjusted gross income.

Remember to document.  It is very important that you properly document your charitable gift.  For a donation less than $250 a canceled check or credit card statement is a substantial form of documentation. However, if your donation is over $250, a canceled check or credit card statement alone is not sufficient enough.  You must have a canceled check or credit card statement and a written acknowledgement from the charity in which you donated to which serves as your receipt.

Some may choose to donate their time to charity as opposed to donation a monetary gift.  Although time is certainly valuable, volunteering time does not come with any tax rewards.  However, being that you cannot deduct the value of your time, you can deduct your mileage, transportation fees, and any other travel expenses that were incurred and associated with volunteering.  For example, if you needed to purchase a LIRR ticket to New York City to volunteer your time at a NYC non-profit organization, you can deduct the cost of your train ticket.

The glory of charitable donations is that you are able to give back and receive at the same time.  However, don’t forget that donating, be it monetary assets or valuable time, is a truly important key to our society and connecting with each other on a do-good human level.

Check out our previous monthly articles.

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