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Donating your time, money and goods to charity is a great idea for many reasons.
Among those reasons are the opportunity to help others and reduce your taxable income at the same time. But how can you ensure both you and the people you’re trying to help reap the greatest benefit from your generosity?
It’s important to have a strategy for your charitable giving, so that you can maximize your impact and get the benefit on your tax return. Here are four tips to help you get started.
1. Donate to efficient organizations
Regardless of what causes you believe in, there are a number of charitable organizations that support them. That said, every charity operates differently, and some spend more money on salaries and fundraising than others.
To make sure your dollars are being put to good use, look up organizations on Charity Navigator to see how they spend their donations. Specifically, look at how much of each organization’s expenses go to program expenses — for the services the organization provides — versus administrative and fundraising expenses.
Also, check to see how much the organization compensates its executives and determine whether you’re comfortable with that amount.
What to do if an organization isn't listed on Charity Navigator
Not all charitable organizations have a profile on Charity Navigator, and some charities don’t have a rating because they have less than $1 million in revenue. If you still want to look into a charity’s finances, look for a copy of its latest Form 990 or request a copy via email. The IRS requires charities to allow public review of their 990s for three years from the date of filing. This form details a tax-exempt organization’s tax status, mission, revenue, expenses and more. With this form in hand, you can see how a charity receives and spends its money.
2. Make sure your donation is tax-deductible
Depending on the type of charitable organization you donate to, you may be able to deduct your contributions from your adjusted gross income. This can be especially helpful if you’re self-employed and are trying to limit your tax liability.
The charity tax deduction is an itemized deduction. This means you can only deduct charitable donations if you itemize your deductions, rather than just taking the standard deduction. Most people take the standard deduction, but if your total itemized deductions exceed your standard deduction amount for the year, itemizing can save you money.
To see whether your favorite charity is a qualifying organization, use the IRS Tax Exempt Organization Search tool. You can search by the organization’s name or its Employer Identification Number, then narrow it down by the city, state and country.
If you donate to an organization that’s not on the IRS list or to an individual, you may not be able to deduct it on your tax return.
Also, note that you can only deduct eligible contributions in the year you contributed them. So charge your credit card or mail your check before the last day of the year to make it count for that year.
In total, you can generally deduct up to 60% of your adjusted gross income for charitable contributions. This is up from the 50% limit from before the 2017 tax reform. If you donate more than that, you may be able to carry over additional contributions for up to five years in most cases.
What you should know about the standard deduction
For 2018, the standard deduction is nearly double the 2017 amounts:
- $12,000 for single taxpayers or married people filing separate returns
- $18,000 for people filing as head of household
- $24,000 for married couples filing jointly
Those higher standard deduction amounts are in effect for tax years between Jan. 1, 2018, and Dec. 31, 2025. Learn more about the standard deduction.
3. Donate more than just cash
It may be easier just to donate money to your favorite charities, but you may also be able to take advantage of the charity tax deduction for other types of contributions. Actively participating in a charitable organization by volunteering or donating an item with personal meaning to you could make your donation an even more emotionally enriching experience.
Here are just a few examples.
You can take a deduction for donated clothing and household items as long as they’re in good condition.
The only exception to that rule is if you’re deducting more than $500 for the item and you provide a qualified appraisal with your tax return. You can also deduct vehicle donations, including cars, boats and planes.
To determine the value of your deduction, you’ll need to figure an item’s fair market value. For clothing, that would be how much you could expect to pay for the article of clothing at a thrift store.
For more substantial donations like vehicles, you may be able to use pricing guides or hire an appraiser to give you the fair market value.
If you give service to your organization and use your car in the process, you can deduct the out-of-pocket cost of gas and oil, as well as parking and toll fees — as long as you haven’t been reimbursed for them.
You can also deduct necessary travel expenses while you’re away from home volunteering for a charitable organization. The only catch is that there can’t be a significant element of personal pleasure, recreation or vacation in the travel.
If you’re required to wear a uniform while volunteering for a charitable organization and it’s not suitable for everyday use, you can deduct your expenses to buy and clean it.
4. Keep your receipts
If you’re deducting charitable donations, it’s essential that you can back up your charitable deduction with receipts. You can also use bank or credit card records, or a payroll deduction.
If you’ve made a donation of $250 or more, you’ll need a form of acknowledgment from the charity or payroll deduction records.What's the difference between a tax deduction and a tax credit?
With careful planning, you can make the most out of your charitable donations, both for the causes you support and your finances.
By focusing on efficient and eligible charitable organizations, you can maximize the value you give and receive at tax time. And remember, the charity tax deduction works best if you have enough other itemized deductions to exceed your standard deduction amount.
If you do your homework and keep the right records, it’ll be a lot easier to make your charitable contributions count for everyone involved.
A senior product specialist with Credit Karma Tax®, Janet Murphy is a CPA candidate with more than a decade in the tax industry. She’s worked as a tax analyst, tax product development manager and tax accountant. She has accounting degrees and certifications from Clemson University and the U.S. Career Institute. You can find her on LinkedIn.