This is the time of year for giving, and your favorite charities and nonprofits depend on you to make their season a little brighter. Digging into your pocket doesn’t benefit just your charity of choice, however. Tax deductions on your charitable contribution can pave the way to a happier new year for you, too. Check out the charitable giving FAQs below from Sunset Bank & Savings to help you make the most of your generosity.
Where does my gift need to go to make it “tax deductible”?
Score a deduction by itemizing and filing Form 1040 when you donate to a qualified organization. 501(c)(3) causes like religious organizations, public government causes, nonprofit schools and hospitals, public parks and recreation areas, nonprofit orgs., and war veterans’ groups fall under the “qualified” category, whereas for-profit orgs., individuals, or political candidates for public office don’t make the cut.
What’s with “itemizing”?
You’re faced with two types of deductions: standard and itemized. Standard is a fixed amount that reduces the income you’re taxed based on your filing status and age. Itemized lets you list your deductions on Schedule A, which includes deductibles like property taxes and charitable donations. If you claim standard instead of itemized on gifts, you won’t receive the deduction you deserve.
How much can I deduct from charitable donations?
If your cash benefits a public organization, deduct up to 50 percent from that year’s Adjusted Gross Income (AGI). That means that a $25,000 donation from your $40,000 AGI will only let you claim $20,000 on your charitable gift in the year that you give it. You can, however, roll over that extra $5,000 up to five years after donating. For contributions to private donations like the Bill & Melinda Gates Foundations, use the same rules but swap 50 percent with 30.
I donated “stuff”, not cash. Does that count?
Yep! Household goods (clothing, furniture, certain appliances, etc.) and other personal property can be claimed based on fair market value. However, it must be in good or better shape that when it was first purchased for the IRS to count it as a deduction. Regardless of the item, keep track of receipts from your donated items, which is especially required for donations of more than $250.
Still have questions about how your giving and your taxes interact? Please seek advice from your tax advisor – and have a happy holiday!