Giving to those in need makes us feel good and has the added benefit of reducing the amount of income taxes we have to pay. Using charitable donations to knock dollars off your tax bill is not always as easy as giving to your favorite charity. There are a few tips that will help you get the most out of the contributions you make this tax year.
When it comes to the IRS, documentation is key. Keeping excellent records is essential to proving that you gave exactly the amount you claimed. Save any receipts, donation letters or thank you cards from the organizations to which you donated. If you donated clothing and household items to a charity shop, it is always a good idea to get photo documentation as well as a receipt. This can be used to confirm the value of your donation if the need ever arises.
Don’t Overlook Less Obvious Donations
When it comes to tax deductions, every dollar counts. Do not lose out on these deductions by neglecting to itemize the less obvious donations you make each year. When the cashier at the grocery store asks you to donate to their charity drive, save the receipt for a write off. When you donate your time to a charity, the time you spend is not deductible but any travel expenses you incur count toward your donations. You can also deduct any recurring donations you make from your paycheck or subscription donations from eligible charities.
Large Charitable Donations Require More Documentation
When you donate small value items or little sums of cash, receipts will suffice for proving the donation. When it comes to larger donations, be aware that they will come under more scrutiny and may require additional documentation. When a donation is above 250 dollars, the IRS requires detailed descriptions in addition to receipts, letters of acceptance and any relevant bank statements. A property donation of 5,000 dollars or more needs an appraisal completed by a professional.
Verify an Organization’s Tax Exempt Status
A costly mistake that taxpayers often make is contributing their cash or property to organizations that have not obtained tax exempt status. The IRS maintains a list of approved charities that are able to accept deductible donations. A charitable organization not on this list may accept donations, but you will be unable to legitimately itemize them on your taxes. Before you make a large contribution, ask to see their certification letter from the IRS. Of course you may still choose to donate to charities that do not retain tax exempt status, but be aware that they will not count toward your deductions.
Deduct the Value of Donation Gifts
Many charitable organizations will offer a gift as incentive for contributing cash. Taxpayers often overlook the need to deduct the value of the gift from the total donation. For example, if you make a small donation to your local public radio station, you must deduct the value of the branded tote bag you receive.