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18 DEC

Charitable Giving and Tax Deductions

by Codeaccounting

The holidays are a popular time for charitable giving. According to Charity Navigator, about a third of annual charity donations are made in the month of December alone. Giving Tuesday, the Tuesday that follows Thanksgiving, is seeing an increasing amount of money donated with every year.

While donating to a fruitful and reputable cause is an excellent way to make a positive impact in your community, maintaining proper records can also help you come tax season. Charitable giving can be generously deducted from your overall tax bill. Code Accounting has a few strategies and tips to help you determine eligible and reputable organizations and to help you maintain thorough records for tax purposes.

In order to take advantage of tax deductions for charitable donations, it is important that the entity you are donating to is officially recognized as charity – these are designated 501(c)(3) organizations, and have met certain requirements and are under ongoing scrutiny to make certain their business practices are appropriate for their designation as a charitable organization. The IRS has a helpful tool to check on the status of an organization here. Donations to international organizations are eligible for deductions if they are registered in the United States and have been recognized with a 501(c)(3) designation.

“501(c)(3) organizations have met certain requirements and are under ongoing scrutiny to make certain their business practices are appropriate for their designation as a charitable organization.”

A new way to make contributions has been through crowdsourcing sites like Kickstarter or Crowdrise. A lot of these projects are raising money for a business, project or individual, which means those contributions are not tax deductible. Only if the entity being featured on the site is registered 501(c)(3) can a contribution be tax deductible. Use the above IRS tool to verify if your donation is eligible, and keep a record of the donation—a screenshot, email confirmation, and bank records indicating the amount, the name of the organization and the date.

There are limits to how much of a charitable donation can go toward a deduction, but for most people, it’s too high to even be a realistic limitation. You can claim deductions for up to half of your adjusted gross income—for example, if your AGI is $100,000, you can claim a deduction of up to a sizable $50,000. There are exceptions to this: if a great deal of your donations are in the form of capital gains or property, things get a little more complicated, and should be discussed with your certified personal accountant.

“You can claim deductions for up to half of your adjusted gross income—for example, if your AGI is $100,000, you can claim a deduction of up to a sizable $50,000.”

It’s also key to note that charitable donations don’t just have to be in the form of cash. As mentioned above, they can be capital gains or property, as well as clothing, vehicles, or other goods. Cash is generally easier to track for tax purposes—if you are donating goods, you’ll want a written acknowledgment from the charity you are donating to of the fair market value of your donation.

At Code Accounting, we always recommend keeping thorough tax records throughout the year instead of waiting for tax season to implement a stressful roundup. Here’s how to make sure you can maximize your deductions:

  • If you donated more than $250, a charity is obligated to provide you with a receipt. Keep this receipt
  • If you donated less than $250, you may not receive a receipt, but you can still verify the donation by retaining a canceled check or a bank record will suffice
  • If you want a deduction for donated clothing goods, they need to be in good, usable condition. Don’t simply drop them off at a bin – you’ll want a representative of that charity providing you with a form of writing that demonstrates its estimated value.
    • If you’ve donated to Goodwill before, you’ll remember that you’re usually asked if you want a receipt. Always say yes, and keep those receipts in a secure place.
  • For high-value donations, you may want to get a qualified appraisal. The IRS is becoming increasingly more strict about estimating the value of items like cars. It’s worthwhile to make sure you’re getting an accurate estimate of an item’s fair market value to avoid any conflicts down the line.

One helpful way to keep clean, accurate records of your giving is to utilize the Charity Navigator’s Giving Basket. Through their site, you can donate to multiple charities at once, set up recurring donations, give anonymously, and get one tax receipt.

If you have any questions about what you’ve read here, or would like to discuss your business’s needs, please don’t hesitate to contact us.

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