Give and Get Back: Charitable Acts That Are Tax Deductible
By Lisa Greene-Lewis
Each year, many of us celebrate the season of giving by donating time, money or much-needed items to those less fortunate. What most people don't realize is that these donations can come in handy come tax-filing time. Charitable donations of money and noncash items to qualified organizations may be claimed as deductions and turned into savings for you down the round.
Claiming donations may seem tricky at first, so here are answers to some of the top questions I get every year.
Are there any rules for which donations I can claim? The IRS has a few rules for claiming donations on your tax return. Timing is everything, so make sure to get those donations in before the end of 2015 if you want to claim them on this year's tax return. The gift must be received by Dec. 31, meaning anything you promise to donate in 2016 doesn't qualify, but a check postmarked Dec. 31 will.
For your donation to be tax deductible, it must go to a qualified organization (more on that later), and you must have documentation of your contributions. Besides the obvious monetary donation, you can claim the value of noncash items such as clothing, furniture, cars and household goods, in addition to mileage driven on behalf of a qualified charity.
You mentioned "qualified" organizations. Which organizations fall under that category? The IRS sets specific rules for the types of organizations you can donate to and qualify for a tax deduction. Your charitable donations may qualify if you donate to a tax-exempt 501(c)(3) organization such as:
- War veteran groups like a local VFW
- Public charities such as Goodwill, The Salvation Army, American Red Cross, United Way and Boys & Girls Clubs of America
- Religious organizations, such as a church, synagogue or mosque
- Public parks and recreation facilities
- Nonprofit hospitals, schools and fire departments
- Local, state and federal governments, but only if the contribution is for public purposes
Not all nonprofits qualify as beneficiaries for tax-lowering gifts, and not all gifts to eligible charities qualify. If you're not sure whether an organization qualifies, check the IRS exempt organization search tool.
What counts as documentation? To claim any donations on your tax return, you'll want to itemize your deductions, and to do that, you'll need documentation.
You'll want to hold on to anything that keeps track of items of value or monetary donations. These can be bank statements, canceled checks or credit card receipts that show the amount of the donation. For cash or noncash items worth more than $250, you'll need to get written acknowledgement from the charitable organization that documents the date and value of the donation.
If you donate property, such as a car, jewelry or furniture worth more than $5,000, you'll need an independent appraisal. The IRS requires the appraisal in order to deduct such a large donation when you file.
Do all the clothes I donated to Goodwill qualify? Now is the time to clean out your closet! Any clothes or household items that are in good shape are fair game. You can deduct the fair market value of the items, so secondhand clothes and other used goods must be in at least good used condition. The blouse and trousers with the tags still on that you never wear? Go ahead and deduct that donation. The old T-shirt you got for free in college? Feel free to pass on that.
What about my out-of-pocket expenses? Any money you spend while volunteering counts, too. Any expenses you incur to do good work, including materials, supplies, uniforms, stationery, stamps, parking, tolls and public transit fare, qualify for deductions. As long as the costs are directly related to volunteering for a charitable organization, keep the documentation and add on to your list of charitable donations when you file your return.
This seems like a lot to keep track of. Is there an easier way? If keeping your receipts stowed away until tax time seems like a monumental task, you can use tools like the free ItsDeductible iOS app or online version to track and calculate the IRS-approved value of your donations. Use ItsDeductible to add items as soon as you complete the donation. You'd be surprised at how quickly these gifts add up.