With the year winding down, it's time to cash in on any last-minute tax breaks you can snag. If you normally itemize your deductions each year, it's a good idea to make a donation to your favorite charity. But there are certain rules you'll have to follow when you're making your year-end donations. That's why it's important to watch out for these pitfalls that could cost you a deduction.
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1. Skipping out on a Receipt
To claim a charitable donation on your taxes, you have to be able to show where the money went. If the IRS decides to target your return for an audit, you could end up having to pay the piper if you don't have a paper trail for the donation.
The kind of documents you need vary based on what you're donating and what the value of the charitable donation is. For contributions of cash under $250, you can present either a bank statement or a written receipt from the organization you donated the money to. The receipt needs to include the charity's name, the amount and the date you made the donation.
For donations of cash or property over $250, you'll need something a little more detailed. In addition to the information mentioned above, the receipt needs to state whether you received anything in return for your donation and include a description of the donated items with their fair market value. For donations of property valued at more than $5,000, you'll also need a qualified appraisal in writing.
2. Overlooking Deductible Expenses
If you can only afford to donate your time, that doesn't mean you have to miss out on a deduction. Certain expenses associated with volunteering can also be included on your tax return, such as uniforms, mileage and travel expenses. Keep in mind, however, that you can't reduce your tax burden by deducting the value of the time you spent giving back to the community.
To claim the deduction for travel, you must have incurred the expenses while you were volunteering at a location that required you to be away from home. The type of expenses that fall under this umbrella include parking fees and the cost of airfare, train tickets, hotels, tolls and meals. Just like with cash donations, you would need to keep the appropriate records for everything you spend.
Related Article: What Can You Deduct at Tax Time?
3. Donating to Fraudulent Charities
The holiday season is when charitable organizations seem to come out of the woodwork to cash in on everyone's good cheer. The only problem is that not all of the charities vying for your donations are legit.
The IRS only allows you to deduct donations to qualified organizations. If you write a check to an outfit that doesn't fit the bill, you won't get any credit for it at tax time. Before you hand over any money, it's a good idea to run the organization's name through the IRS Exempt Organizations Select Check tool so you can avoid scams.
4. Claiming More Than You're Allowed
When you make a charitable donation, the IRS only allows you to deduct the portion of it that you don't receive any benefit from. If you get something in return for your donation that has any monetary value, that amount won't count towards the deduction.
For example, if you donate $1,000 to your alma mater and get free tickets to a banquet dinner, you'd have to subtract the value of the tickets from your donation. Bottom line: If you want to max out your donations before the end of the year, it's best to choose your giving opportunities carefully.
Don't Wait Until the Last Minute
For your charitable donation to count towards this year's taxes, you'll have to make it by December 31st. If you're mailing a check, it's important to make sure it's postmarked no later than that date. Otherwise, you'll have to wait until the next tax year to claim it.
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