Making Your Charitable Contributions Count

Although 2020 has been a hard year, seeing people come together and help one another has been a beautiful thing. If you’ve been making charitable contributions, or are considering doing so for the holiday season, you might be happy to know that you can also earn a tax deduction for doing so. But as with most other tax matters, you must follow IRS rules carefully. Keep these 10 guidelines in mind.

1. Yes, there is a limit on how much you can claim as a charitable contribution. The limit is relatively high, and few people ever reach it. But if you plan to donate more than 20 percent of your adjusted gross income to charity, meet with a tax professional first. The rules become more complicated at that point.
2. Only those who file itemized returns can claim charitable contributions as deductions.
3. Only donations to IRS-approved donations are countable toward a tax deduction. Ask the organization to see proof that they are qualified by the IRS. Churches, synagogues, temples, and mosques are automatically included.
4. As you might imagine, the above rule does mean that donations to individuals will not count as a tax deduction. If your community wants to organize to help someone with medical treatments or some other emergency, passing the donations through a qualified organization is possible.
5. No, donations of your time are not tax deductible. However, you can deduct the cost of necessary supplies and things like transportation and parking.
6. If you donate items to charity, rather than cash, you can only claim the current market value of those items. But since some items do appreciate over time, get an appraisal on antiques, collectibles, art, and so on. Also, donating stocks is another possibility. If the value has increased, you can gain a tax deduction while also potentially avoiding capital gains taxes.
7. If you receive a gift in return for your donation, you must deduct the value of the gift from your donation. Then, only the balance can be used as a tax deduction (the amount you paid in excess of the value of the gift).
8. Save receipts so that you can prove your donation. Credit card statements will also suffice.
9. If you want to give regularly, consider establishing payroll deductions to cover your donations. Then, your pay stub or W-2 can serve as proof of your gift.

If you have any other questions about making charitable contributions count, give us a call. We can help you decide how these gifts fit into your overall financial plan.