Reaching out to charity is a good thing to do, however contributions are also a tax deductible expenditure. Charitable donations are just an additional way to reduce your taxes. If you’re considering taking the Charitable Contribution Deduction, always remember that there are some rules to be eligible.
Ensure that the charity organization you’re contributing to is an eligible tax-exempt group: Religious groups like churches, mosques and so on are not mandatory to file for tax-exempt positions from the IRS. However other charitable groups should have attained their 501(c) (3) ranks so that your contributions can be tax deductible in the Charitable Contribution Deduction, despite if it is property or cash. Constantly check the group or organization to make sure your contribution is tax deductible. Should in case they are uncertain, you can visit IRS publication 78 that lists most eligible groups.
Always keep thorough records: Remember to collect a receipt for your contribution always whether it is estimated worth of donated items or cash. Always keep the canceled check should in case you want to issue a check. Should in case you contribute a huge property or item such as a car, house, etc. ensure you collect a letter of acknowledgement showing the value. Should in case the property or item is worth $5000 or more you should get a written review of its market worth in order to take the Charitable Contribution Deduction.
Whenever you make a contribution, create a note which comprises of the name of the charity organization, date of contribution and the worth or amount. In order to take the Charitable Contribution Deduction you’re required to itemize your contributions, so this detail will be helpful.
Have knowledge of the donation limits: You may be unable to deduct all your charitable contributions depending on your income. Generally, the rules below apply:
- Cash donations are completely deductible up to 50% of your attuned gross income.
- Property donations are completely deductible up to 30% of your attuned gross income.
- Properties with appreciated capital gain such as real estate, stocks, jewelry, etc. are completely deductible up to 20% of your attuned gross income.
Be watchful, however. Most organizations are categorized under the 20% or 30% limit even if your contribution is in cash. The charity organization has to tell you which category they are under. Should in case they can’t, you can check their Limits on Deduction area of the IRS publication 526, Charitable Donations, in order to ascertain which category they are in. Should in case you go beyond the limits of the attuned gross income in 1 year, you will be able to put back the deduction up to the following 5 tax years pending when the deduction is finished.
Have knowledge of what isn’t deductible: Donations to some groups don’t make you eligible under the Charitable Contribution Deduction. Examples of such organizations are:
- Campaigns, political parties, or action committees
- Dues or fees paid to labor unions, professional organizations, or business groups.
- Donations to country clubs or homeowners associations.
- Contributions to commercial hospitals or schools.
- The worth of your time, energy, or income lost as a result of time contributed to a noncommercial.
As soon as you have understood what is deductible and have done all your paperwork, how to file the deduction should be the next line of action. Quite a few forms may be drawn in, depending on the worth of your donation. Firstly, you should be able to itemize your deductions. Should it be that you’re using the standard deduction on your taxes, you will be unable to claim the Charitable Contribution Deduction. These deductions should be listed on your 1040, Schedule A.
Secondly, should in case your overall noncash contributions go above $500 you’ll be required to file IRS Form 8283 together with some additional tax forms. Should it be that the item was a boat, plane or motor vehicle you should file IRS Form 1098-C as well.
Making use of the Charitable Contribution Deduction can often be complicated. The simplest way to verify your contribution is to utilize an online e-file website such as efiletaxreturns.com. The website will ask you some important questions as regards to your donations and assist you to determine which category the charity organization fall under and the amount which can be deducted. You will not be asked to present your documentation with your tax return. Nevertheless, do not forget to keep those records together with a duplicate of your tax return for cases of audit. Should in case you cannot provide evidence of your contributions, you will not be eligible for the deduction and may be threatened with fines and penalties.