Claiming a tax deduction for charitable contributions.
By donating to charity, you can not only give back, but also potentially receive benefits. Contributing to qualified organizations can lower your taxable income. The specifics and worth of your donations will determine the forms you need to submit, so it's crucial to understand the distinctions.
CNBC Select explains how charitable contribution deductions work to help you maximize your tax savings.
What is a charitable contribution?
A charitable contribution is defined as a gift or donation made directly to or for the benefit of a qualified organization, which can be confirmed using the Tax Exempt Organization Search tool on the IRS website. Donations can be in the form of cash or other items such as clothing, electronics, furniture, art, stocks, cars, and real estate.
Charitable contributions are generally tax-deductible, but there may be limitations and exceptions. For example, eligible itemized charitable donations made in cash are deductible in the year the donation was made, but are limited to a percentage of a person's income, typically 60%.
Credit card issuers, including Discover, allow donations of rewards to charity, but the IRS considers these rewards as discounts rather than income, making them non-tax deductible.
How to write off charitable contributions
Non-cash contributions over $500 necessitate the submission of Form 8283, while taxpayers can deduct charitable contributions by itemizing their deductions on Schedule A (Form 1040).
TurboTax and H&R Block are recommended by CNBC Select for their range of plans and 100% accuracy guarantees in helping you fill out the necessary forms online.
TurboTax offers a specialized tool called ItsDeductible for tracking charitable donations. This tool helps determine the fair market value of donated items and allows for easy exportation of the list into TurboTax.
Charitable contribution requirements
To be eligible for a tax deduction, your charitable contribution must be made to a nonprofit organization registered with the IRS under section 501(c)(3). Gifts to individuals, including relatives, and donations to personal crowdfunding campaigns, such as those through GoFundMe, are generally not considered tax-deductible.
To be considered qualified, organizations must operate for religious, charitable, scientific, public safety testing, literary, or educational purposes. You can verify an organization's tax status using the IRS website's Tax Exempt Organization Search tool to determine if your contribution is tax-deductible.
If you receive something in return for your gift, such as a gala dinner or event ticket, you may only deduct the amount beyond the value of the benefit. If you contribute $100 to a charitable organization for a fundraising dinner and the value of the dinner is $60, for example, you may only deduct $40 from your taxable income. Organizations generally provide a donation receipt to inform you how much you can deduct.
Donating property typically entails deducting only the fair market value of the charitable contribution. The IRS offers comprehensive information on property contributions. For donations valued at $5,000 or more, you must complete Section B of Form 8283.
Overlooked tax-deductible charitable contributions
CNBC Select offers some creative ways to donate to a good cause while also receiving tax benefits.
- Tax deductions may be available for unreimbursed expenses related to fostering pets for a 501(c)(3) shelter or rescue group.
- Numerous museums, such as the American Museum of Natural History and the Museum of Modern Art, provide tax-deductible memberships.
- You can sponsor a qualified non-profit sports team, theater group, or other similar organization if you make a qualified sponsorship payment. However, only a portion of this may be tax deductible, and the specific circumstances can vary. It's recommended to consult a professional for guidance.
- Supporting national parks through donations to the National Park Foundation can offer tax benefits as the organization is registered as a 501(c)3 non-profit.
Tips for deducting charitable contributions
When deducting donations, it's important to consider the various nuances involved in filing taxes.
- Ensure that you are donating to a qualified charitable organization.
- Filing Form 1040 and itemizing deductions on Schedule A is necessary to deduct charitable contributions.
- If you receive any benefit from your donation, you must deduct only the excess of your gift minus the value of the benefit you received.
- To accurately record any monetary gift deductions, it is necessary to retain details such as the organization's name, the date of the contribution, and the amount contributed.
- A qualified appraisal is required if you're donating property valued at $5,000 or more.
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