How Does Making A Donation Affect Your Taxes?

Donating to a charity can make you feel good about what you’re doing with your money. Additionally, each year, charities rely on the donations of others so they can do their work. Have you been hesitant to donate to a charity in the past? Well, that feeling might change when you understand how donating to a charity can tax-deductible. However, before you decide which charity to give to, you should know which donations you can deduct from taxes.

Tax Savings From Charity Deductions

Do you owe IRS back taxes? Well, donating to a charity may be the tax break you need. Charities will often accept donations from people no matter how much money they earn every year. However, not all taxpayers will benefit from deduction charity donations on their tax returns. Charity donations will typically only benefit high-income earners. Those whose incomes exceed the 10 percent tax bracket will especially benefit from charity donations. However, lower income earners often don’t make enough money to exceed the standard deduction rate the IRS allows. If taxpayers don’t make enough money, they can’t itemize deductions like charitable donations on their returns. If you are in the 15 percent or higher tax brackets, you may benefit from charity donations. Generally, the amount you save by contributing increases as you rise in the tax bracket. Those who earn the most, keep the most.

What Kind of Charity Donations Are Tax-Deductible?

To claim a charitable deduction on your tax return, you must donate during the same tax year. Therefore, you are unable to claim the donations you made in the previous tax year(s). Additionally, the charity donation must be made on or before December 31 to be eligible for a tax deduction. Also, you must donate to an IRS-approved 501(c)(3) charity. 

What are 501(c)(3) charities?

The IRS considers a 501(c)(3) organization to be one that is exempt from federal income tax. Organizations which are approved by the IRS for deductible donations include:

–    Churches

–    Tax-exempt educational organizations

–    Hospitals and medical research centers that are tax-exempt

–    Community chests supported by the public

–    Private foundations that donate to public charities

–    Membership organizations that contribute more than a third of donations to the public

What are not approved tax-deductible contributions?

The IRS does not allow you to deduct donations made to:

–    Individuals

–    International disaster relief or humanitarian charities, unless registered in the United States

–    Foreign governments

–    Political parties

–    Social welfare organizations

–    Political campaigns or action committees

Before you decide to donate to a charity, ensure that the IRS approves it. You will not be able to make a tax dedication if it’s not an IRS-approved charity.

Can I Deduct Non-Cash Charity Donations On My Tax Returns?

Making a tax-deductible donation to a charity helps you lower the amount of taxes you owe the IRS. Donating with a check or credit card provides you with instant proof of your donation. Additionally, many charities give receipts to people who donate money. However, what about that non-cash donation you made to your favorite charity? Can you claim non-cash contributions on your taxes? Non-cash contributions may include:

–    Household items

–    Furniture

–    Office equipment

–     Vehicles

Similar to cash, check, or credit donations, most charities will provide you with a receipt of your gift. 

The IRS allows you to deduct non-cash donations from your taxes for the property’s fair market value. To be deducted from your taxes, the market value must be at least $500. Additionally, you should keep the original copy of the receipt for at least ten years. 

Making Donations Lowers Your Tax Burdens

The IRS offers taxpayers the opportunity to deduct charitable donations to lower tax burdens. However, before you donate to a charity, make sure it’s tax-deductible. You can, of course, still, give out of the kindness of your own heart. However, if you’re donating to benefit your taxes, make sure it’s tax-deductible. When you want to reduce what you have to pay back in taxes, make a charity donation. 

What are the rules for claiming a charitable contribution deduction?

The IRS sets forth a variety of rules for claiming a deduction for charitable contributions. These rules include:

–    You must donate cash or property. A promise to give is not tax-deductible.

–    As we mentioned above, you must contribute to a qualified tax-exempt organization. Charities will let you know if they have 501(c)(3) tax-exempt status. However, some organizations, like churches, are not required to receive exempt status from the IRS.

–    You must meet the IRS’ recordkeeping requirements, including saving receipts and canceled checks. Also, it’s a good idea to keep acknowledgment letters from the charity, and appraisals on the value of your items.

Keep Records of Your Donations

You must keep records of your charitable donations. Additionally, your written records must include:

–    The name of your charitable organization

–    Date on which you provide the contribution

–    Amount of the gift

You can also keep bank statements. Credit card statements will also work like a canceled check. Also, charities will often provide donors with written letters of acknowledgment or receipts. If you don’t have written confirmation from the charity, the IRS can disallow charitable donations of $250 or more. If you make more than one contribution over that amount, you will need separate letters of acknowledgment.

About Platinum Tax Defenders

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