Just as you review your finances at the end of each year, it’s also a good time to assess how much you’ve donated to charity — or to start planning to do so. This is useful not only to track how much you’ve given and where, but because charitable contributions might help lower your taxable income.
Around the holidays, when all sorts of charitable organizations are vying for your contributions, you have a great opportunity to potentially reduce your tax liability by making a year-end contribution. But first, you’ll need to consider if you have the means to help those organizations you know and care about. Second, you should be aware of potential scams and always research the organizations you may be considering before you donate. And third, the information provided below is not intended to be tax or legal advice. You should always seek guidance from your tax and legal professionals directly about your specific situation before you take any action.
What Is a Charitable Contribution and When Is It Tax-Deductible?
You make a charitable contribution whenever you give money or goods to a tax-exempt organization, whether it be a non-profit organization, a homeless shelter, educational institutions, religious organizations, or even your local Goodwill. The qualifying non-profit organizations will provide a receipt of your donation. To deduct your charitable contributions from your taxes you will have to itemize them using a Schedule A form when filing your tax return, but keep in mind that your deductions cannot exceed 60% of your adjusted gross income.
Guidelines for Tax-Deductible Contributions
Not every donation is tax-deductible. If you are planning to deduct your donations, keep in mind the following guidelines:
- You can only deduct for contributions to qualifying organizations — usually those that are tax-exempt (501(c)(3)).
- You must have documentation of your contribution, generally a receipt from the organization or a bank or credit card statement showing how much you gave.
- You can deduct the costs associated with your volunteer work. The time you spend volunteering is not tax-deductible, but any expenses related to your volunteering (e.g., your mileage if you drive your car for volunteering) are.
Household Goods Can Be Donated
Remember, you can donate both goods and money to charity. Do you have items around the house you’d like to donate? Maybe your child has grown too big for a bicycle, or you have recently purchased a new set of dishes and don’t need your old set. Or perhaps you had a PCS move recently or you are planning to move soon — are there items you no longer need or won’t fit in your new space?
IRS rules for donating goods are a bit stricter than those for giving money. When you donate goods, their value is assessed at the time of donation based on their current resale value, not their original value. Also, you must list the items you’ve donated, and be able to provide a receipt from the organization that received them.
You Have Until December 31 Each Year to Donate
If you want to take a tax deduction for making a charitable donation, there’s still time. Are there any organizations you’ve donated to in the past or whose mission you support? Do you have lots of stuff you could pass along to others through a charitable organization? Now’s the time to write that check or drop off your stuff. Just remember to get your receipt.