Charities need our help now more than ever. They provide valuable services for the community and need our help to sustain themselves. When giving to a charity or a nonprofit, naturally you want to get an optimal tax benefit from your generous donations. It is obvious that you want to keep track of all your donations, that is an absolute minimum. Always keep your receipts – put them in your trusty tax folder (please do not use a shoebox!). Here are seven additional recommendations to consider when donating:
1) Write checks to charities, do not give cash
When you hand cash out to a charity, unless they are giving you a direct receipt, there is no way to track your contributions. By writing a check, this check will run through your bank statement and you will have transactional proof of the contribution, whether or not the charity gives you a year end receipt. Cash might be easier, but writing checks will give you possible tax deductions. This is the way to go.
2) Calculate your goodwill donations – they can really add up!
It is your responsibility to calculate the value of the donations and there are several helpful sources to help – here is one example: https://www.dcgoodwill.org/wp-content/uploads/2014/05/dcgoodwill-irs-donation-value-guideweb.pdf
Many people are under the impression that $250 or $500 is the maximum they can deduct in one year. This is simply not the case! If you take the time to tally each shirt and each pair of pants, you may be surprised at the year-end total.
Pro Tip: Before you bag up your clothing donation, organize your items by clothing type and spread them out over a large area. Take a few pictures of the lot and save those pictures with your donation records. This is a great way to substantiate your donation on camera, providing you with additional audit armor.
3) Qualified contributions need to be to qualified organizations.
Gofundme does not equal an automatic charitable deduction. A common rule of thumb is anything that would benefit you or your family directly is not typically a qualified deduction for tax purposes. Any donation that goes to a specific individual is not tax-deductible. If you donate more than $250 to a nonprofit, they are required to send you a year end statement detailing out your contributions and their nonprofit distinction. Sometimes nonprofits neglect to do this step, so you might have to do a bit of research to confirm your donation was a tax-deductible one.
According to IRS Publication 526: “Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals”. Be careful of which donations you record as charitable on your tax return.
4) Remember to deduct from your donation any benefits received.
Your donation is defined as what you contribute less the fair market value of benefits received. Basically this means if you received something in exchange for your donation, this benefit needs to be quantified. Any donation in excess of benefit received is a qualified charitable donation. A few examples of benefits would be the value of the meal for attending a charitable dinner, value of a car wash received at a charitable fundraiser, and the value of a backpack received for a donation.
The charity can provide the value of the benefits received, but if you are not provided a value you need to estimate and reduce your donation by that amount. The reasoning behind this is straightforward – you do not get a double benefit of a good/service and a charitable donation. Often on year end donation forms, charities will state any value of gifts received. If no benefits were given, a phrase similar to “no goods or services were received for this donation” should appear on the statement.
5) Don’t forget your mileage!
Miles you drive for performing charitable work and for delivering non-cash goods can potentially be tax deductible for you. You do not have to donate items to the charity directly to get this deduction – the mileage can be related to your volunteer service for the charity. This is not typically a large deduction, but for those volunteering once or twice a week it can add up.
Side note: keep in mind you cannot deduct your time as a monetary donation. While the nonprofit appreciates your donation of time, the IRS does not quantify your time as a deduction. Do not attempt to deduct on your tax return.
6) You can donate non-cash items other than food and clothing to charity.
There is a wide range of items you can potentially donate to charity, based on what they are willing to accept. Sometimes this scenario makes perfect sense. Let’s say the charity needs several large tables to serve food to the needy during outdoor events, which is something they do often. Instead of receiving cash donations, then turning around and using that cash to buy tables (plus potentially paying sales tax on the tables), the charity could receive donated tables directly to serve their purpose.
Items can either be directly used by the charity, or the charity can resell the items and use the cash value for charitable purposes. A few examples of resale items are appreciated stocks and used cars. This can be a great way to get additional value out of a non-cash tangible item that you no longer need or want. Keep in mind that an appraisal may be required for a high-value item.
7) If you are charitably inclined and have a high dollar amount to give to charity, you can consider a Donor Advised Fund.
A Donor Advised Fund can be likened to a charitable investment account. The basic concept is that you make a one time or recurring contribution to a qualified Donor Advised Fund and receive a charitable tax deduction the year you contribute the money. Keep in mind that not all contributions to Donor Advised Funds are tax deductible, so do your homework or reach out to a professional to help. Due to the abuse of such funds in the past, this area is highly regulated, so caution is advised. When used properly, a Donor Advised Fund can be a powerful tax planning tool.
Giving to charity is a noble act. There are several ways to give (monetary, time, tangible goods) and for some contributions, you can receive the tangible benefit of a tax deduction. Remember to follow these seven tips to maximize potential deductions.