‘Tis the Season of Charitable Giving – and Getting a Tax Break
In December, Americans tend to be quite generous when giving to charity: about 30 percent of annual giving occurs in December, with 10 percent given on the last three days of the year. In fact, the largest gifts are made on December 31, ahead of #GivingTuesday and disasters. In all, Americans donated $358 billion in 2014.
In addition to helping others, taxpayers can use their charitable contributions to lower their own tax liability. For example, a taxpayer with a marginal tax rate of 25 percent could save $25 in taxes for every eligible $100 donation. Taxpayers need to follow these guidelines in order to deduct their charitable giving on their tax return.
The first step for taxpayers is simply to give: give cash, give clothing, give household goods or even give a vehicle.
Find qualifying charities
Taxpayers must give to eligible charities if they want to deduct their contribution. Most organizations, other than churches and government entities, must apply to the IRS to become a qualified charitable organization. Taxpayers can use the IRS online tool to search for charities’ eligibility.
Observe December 31 deadline
To deduct their charitable donations on their 2015 tax returns, taxpayers must give by December 31, 2015. If paying by credit card, the gift must be charged by December 31, not paid by December 31. If paying with a check, it must be in the mail and postmarked by December 31. The check does not have to clear by December 31 to qualify for a 2015 deduction.
Understand documentation requirements
Taxpayers must keep good records to substantiate their donations. The substantiation needed depends on both the type of donation and its size.
For cash donations, taxpayers must have either a bank record, such as a cancelled check or credit card statement, or a receipt from the charity. For cash contributions of $250 or more, the taxpayer must obtain a written acknowledgement from the charity.
If the donation is not cash, taxpayers will need to have different documentation, including receipts, acknowledgments, appraisals and even pictures depending on the value of the donation.
Taxpayers do not have to submit substantiation documents with their returns, but must have them available to back up their deductions. Taxpayers who make non-cash contributions and claim charitable deductions in excess of $500 must complete Form 8283 and submit it with Form 1040.
The final step is to itemize deductions on their tax return. But, not every taxpayer will benefit from itemizing their deductions. It might benefit them to use the standard deduction if it is bigger than their itemizations. The standard deduction is $6,300 for single taxpayers and $12,600 for married taxpayers filing jointly.
In addition to making charitable contributions, there are a lot of ways for taxpayers to save money on their taxes – from saving, giving, losing and spending money to paying bills and getting health insurance. To learn more about the tax implications of making charitable contributions and how to make good tax planning decisions, talk to a trusted tax professional.