Charitable Donations and Tax Deductions
If you are making charitable donations throughout the year, you may be able to use them as itemized deductions. In this article, we will go over the different types of charitable donations. As well as what qualifies as a deductible donation and limitations.
Types of Charitable Donations
There are four main types of charitable donations. These include:
- Cash: Cash is the most common of donation.
- Intangible Assets: This category includes things like securities. Many people like to donate them to remove the tax burden that happens when a security raises in value. The fair market value on the date of donation is the value of the donation. You can also use life insurance policies. You can deduct the value of it as a donation if you name the charity as the irrevocable beneficiary.
- Tangible Assets: This type of donation includes items like real estate, furniture, clothing, art, and motor vehicles. It is important to note that you can only take a deduction for clothing and/or household items if they are in good condition.
Deductible vs. Non-Deductible
To be able to deduct your charitable donations you must make them to qualifying organizations. This includes religious, scientific, education, and literary organizations. As well as the Red Cross, Salvation Army, and YMCA. You can also donate to organizations that prevent cruelty to children and animals, foster amateur sports, non-profit veterans’ organizations, and federal, state, and city governments.
Contributions that would not qualify as deductible include those made to political campaigns, lobbying organizations, professional groups, civil leagues, for-profit schools or hospitals, blood donations, and foreign governments.
This is not an exhaustive list, so be sure to do your research before making any donations.
Deductions for charitable donations come with some limitations. For example, cash donations are generally limited to 50% of your Adjusted Gross Income or AGI. If you donate any property that you have possessed for a year or longer you can only deduct it up to 30% of your AGI.
If you gift anything to a Veteran’s organization the limitations will be based on the type of donation. Cash donations are limited to 30% of AGI and long-term held property is limited to 20% of your AGI.
It is also important to note that your combined charitable donations may be reduced by 3% if your AGI exceeds $145,000. However, if any of your donations exceed the above percentages the excess is portable for the next five years.
Just like anything else you claim on your taxes, you must keep the correct documentation for your records. If you have made a cash donation under $250 you should keep a canceled check or a dated receipt. If you make a cash donation of $250 or more, you must get a written acknowledgment from the charity. A valid acknowledgment includes emails, postcards, computer-generated forms, and letters.
Non-cash gifts worth $500 or more require a Form 8283 to be attached to your return. If you donated a car, boat, or other motor vehicles you must attach Form 1098-C to your tax return. If you are claiming $5,000 or more for an item or a group of items, you must get an appraisal report from a qualified appraiser.
Claiming Your Charitable Deductions
This article provides you with a general outline on how to claim your charitable donations. However, it is very important to remember that taxes are complex. You should seek the advice of a qualified tax professional before making any large donations.
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