One of the positive effects of donating (money) to a charity is simply feeling good about giving. Your ability to give back to those in need helps you achieve a sense of satisfaction, it just feels good to help others. And, it can also reduce your tax bill — but only if the charity qualifies as a tax-exempt organization.
Checking for qualified status:
If you plan on itemizing your deductions on your tax return, make sure the organization you’re donating to is designated by the IRS as a 501(c)(3) organization in good standing.
You can find a list of qualified 501(c)(3) organizations on the IRS website. Remember, even last year’s qualified organizations could lose their non-profit status if they do not submit their annual tax filing!
Ensuring a tax-exempt status is not your only step in verifying who you are donating to. You should also conduct research on the charity. There are many websites that evaluate organizations; how they spend their funds, and how efficient your donation is being used.
Here are a few other key requirements if you want to deduct your charitable donations:
- Keep good records. The tax law imposes strict record-keeping requirements. Notably, for monetary gifts of $250 or more, you must obtain a written acknowledgment from the charity (with specifics) before you file your return.
- Understand rules around quid pro contributions. If you receive a benefit in return for your donation (e.g., dinner at a fundraiser), your deduction is limited to the difference between the donation amount and the value of the benefit. Obtain substantiation from the charity.
- Know the annual limit. Under the recent legislation, the annual deduction for monetary contributions is currently limited to 60% of your adjusted gross income (AGI), up from 50%. Stay below this threshold.
- Follow property rules. Besides a 30%-of-AGI limit for gifts of appreciated property, other special rules may apply. For instance, you must ensure that the property is used to further the 501(c)(3) organization’s tax-exempt mission. If you donate property valued at more than $5,000, you need to obtain an independent appraisal.
You may be able to reduce your tax liability by boosting your donations late in the year and pushing your total itemized deductions amount over the standard deduction threshold ($12,000 single/$24,000 joint).
Jeffrey Schneider, EA, CTRS, ACT-E, NTPIF is a tax expert and can work with you to keep you tax compliant. Contact us now.