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It’s the holiday season, otherwise known as the season when 43 percent of people give more than any other time during the year, according to the National Center for Charitable Statistics.1 This time of year is when people feel more drawn to donating to charities.
Donations, of money or other goods, to a charity before January 1st can also help on your federal income tax return. While the purpose of giving should not be to receive a tax deduction, for those who plan to donate anyway, it is important to keep in mind. At Daymar, we want you to be informed about giving before you give.
According to an article on usatoday.com, here are the five best ways to be smart when donating to charities:
Ensure that you are donating to charities that are trustworthy and transparent.
“Research the organization and find out how it uses its money and how it's led,” stated the usatoday.com article.2 “Charity Navigator, a non-profit that rates and ranks charities, says charities that are an open book and follow good governance practices are less likely to engage in unethical or irresponsible activities. Its free database at charitynavigator.org can give you an assessment of the financial health, accountability and transparency of 8,000 of the country's best-known charities. It's also a source of information on more than 1.5 million nonprofits.”
Before you try to deduct your charitable donation, verify that the organization you donated to is eligible for tax deduction. The IRS website offers a database search of eligible tax-deductible organizations. The organizations that are usually eligible to receive deductible donations are:
- Government agencies
To be able to deduct your charitable donation, you must itemize on your federal tax return. “That means people who choose the standard deduction or file using simplified forms such as 1040A or 1040EZ may miss out on this tax perk. Most tax software will alert you to the tax savings available if you itemize versus using standard deductions,” stated the usatoday.com article.1
According to hrblock.com, itemized deductions could total less than your standard deduction. If that’s the case, you can still itemize deductions instead of claiming the standard deduction. This typically can lead to a larger tax benefit if you itemize on your state return instead of claiming the standard deduction on your federal return. It is important to understand some basics of accounting when it comes to your tax deductions.
It is crucial to remember that when donating to charities, you need a bank record or written statement from the charity to prove the amount. You must justify that you have donated to an eligible charitable organization. For example, this could include a credit card statement. If a payroll deduction was made, you should hold on to a copy of the pay stub, a W-2 form or other document from the employer showing the amount donated to the charity.
When it comes to donating to charities, the rules are slightly different when it comes to donating goods instead of donating money. Deductions for material items are limited to the item's fair market value, which you can find out more about on the IRS website. Items must be in an acceptable condition to be tax-deductible.
“If the donation is worth $250 or more, you must also get a written acknowledgment from the charity. Special rules apply to donations of cars, boats and other types of property. Appraisals are often required for larger donations of property,” the usatoday.com article stated.1
There is a lot to know about taxes and it is important to be knowledgeable when dealing with your finances. If you’re interested in how taxes work, check out the accounting program at Daymar. Before you know it, you could have your own accounting career!
Contact us today to learn more.