This Giving Tuesday, don't forget to keep track of your donation receipts. Show That's because individuals can write off up to $300 in cash donations, and up to $600 for married couples filing jointly, made to qualifying charities in 2021, regardless of if they take the standard deduction or itemize their taxes. Typically, only those that do the latter can write off donations, but Covid-era laws changed that for 2020 and 2021. The tax change alone isn't a reason to give more this year, but it is good news for the estimated 90% of households that take the standard deduction each year. However, for donations to count as a tax deduction, there are a few requirements. First, they must be made to eligible organizations. You can use this tool on the IRS's website to quickly see if the organization you want to donate to qualifies. That said, not every qualifying organization is listed there. You can also look on many organizations' websites for a determination letter from the IRS. Keep in mind that donations made to individuals are not tax-deductible. So if you gave to a GoFundMe campaign that wasn't linked to a charity, it likely does not qualify (that's no reason not to give, of course). Second, the donations must be made in cash (including by check, credit card or debit card), and you'll need the receipts. Volunteering, or donating household items or other property does not count. Let's say a married couple with an effective tax rate of 25% jointly donated $750 throughout the year. If they take the standard deduction, they'd be able to deduct the full $600, lowering their federal tax liability by $150. There's one other important change to individual charitable giving this year. Those who itemize typically can write offup to 60% of their adjusted gross income for qualifying cash contributions. This year, they can write off 100%. Sign up now: Get smarter about your money and career with our weekly newsletter Don't miss: Here are your new income tax brackets for 2022 Top Updated for Tax Year 2022 • October 18, 2022 08:17 AM OVERVIEW Knowing what you can and can't claim as charitable contributions helps you maximize the potential tax savings that the charitable tax deduction offers. For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post. Key Takeaways • Gifts to a non-qualified charity or nonprofit are not deductible. To qualify, a group must register with the IRS under section 501(c)(3) or, in some cases, section 501(c)(4). • A pledged or promised donation is not deductible, only money that is actually given. • Money spent on fundraisers such as bingo games or raffles are not deductible. • Cash donations without a receipt cannot be
deducted. Cash donations greater than $250 must also be documented with a letter from the organization. Non-cash donations also need supporting records. Not all nonprofit organizations qualify as beneficiaries for tax-lowering gifts, nor do all gifts to eligible charities qualify. Knowing what you can and can't claim helps you maximize the potential tax savings that the charitable tax deduction offers. Gifts to a non-qualified charity or nonprofitAs a society, we give nearly 2% of our personal income to charities and nonprofit organizations. However, there is a common misconception that all nonprofits are qualifying charitable organizations - but that isn't always the case. For tax purposes, the law classifies charities and nonprofits according to their mission and organizational structure. Each group must register with the IRS for the section of the law that applies to it.
Because the IRS allows deductible donations to some entities that aren't registered as a 501(c)(3), donors can get confused.
A promise to payPromised donations do not equate to tax-deductible donations. That pledge you made doesn't become deductible until you actually give the money. When you agree to contribute $10 per month during a fund-raising drive, only the monthly payments you make during the tax year can be deducted on that year's return. You cannot claim $120 if you only paid $40 during the year. The gift that's not a giftTax preparers frequently find themselves presenting bad news to clients seeking charitable deductions for bingo games, raffle tickets or lottery-based drawings used by organizations to raise money. Unfortunately, fund-raising tickets are not deductible. Another misconception relates to community drives aimed at helping an individual or family with medical costs, loss of a house from fire or funeral expenses. Make sure that the cause is sponsored by an 501(c)(3) organization such as the Salvation Army or Red Cross so your financial assistance meets the deductibility test. TurboTax Tip: To qualify as a deduction, a contribution must be made before the end of the tax year. Post-dated checks, checks mailed after December 31, and stock transfers not processed before the end of the tax year are not deductible for that year. Ill-timed contributionsTiming plays a role for other cash and stock donations, too. You can't claim a deduction for a check with a future date that falls into the next tax year, even if you send it by the end of the year.
Gifts that benefit youThe time factor of gift eligibility isn't the only misconception taxpayers have. By IRS definition, charitable contributions represent gifts given without reciprocity. Supporting a charitable organization by buying merchandise or attending an event puts you into the got-something-in-return category.
Politics and charitable contributions don't mixJoining the political process of our democracy through monetary support does not help reduce your taxable income via charitable donations, much to the disappointment of patriotic donors. They don't count as a miscellaneous deduction, either. Your tax bill will not be lowered after giving money to:
Undocumented charitable donationsAt the end of the year, when you remember those dollar bills you gave here and there to local charities and churches, you may be surprised to learn that you can't take a deduction because you have no receipts. The IRS requires proof of all cash donations big or small, such as a canceled check or a statement or receipt from the receiving organization.
Non-cash donations, such as a vehicle, also need supporting records.
Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation. All you need to know is yourselfAnswer simple questions about your life and TurboTax Free Edition will take care of the rest. For simple tax
returns only Real tax experts on demand with TurboTax Live BasicGet unlimited advice and an expert final review. Done right, guaranteed. For simple tax returns only
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business. |