In this article, we will take a look at which donations are tax-deductible so that you can plan out your tax deductions. Read on to know about minimizing your tax returns through donations to various charitable organizations.-
Giving to charity is a novel idea, and it makes one feel nice and content. Apart from the moral satisfaction, it can also make you save some dough on your annual tax. One of the financial benefits is that the government offers you an attractive incentive in the form of income tax deductions for the donations you have made to charity. Generally, if you give to churches, temples, non-profit organizations, schools, etc., the donations are considered to be tax-deductible donations.
Donating money to charity is one of the good tax planning strategies. There are certain terms and conditions that need to be fulfilled for tax deductions for donations. An organization cannot claim itself as charitable, instead Internal Revenue Service lays down the rules for an organization to be considered as a qualified charitable organization. Let us take a look at some of the tips to ensure that the donations that you have made are tax-deductible.
Points to Remember For Tax Deductions on Donations
✦ The donations must be made to qualified organizations. To know which organizations fall into that category, you need to look into the IRS Codes. Contributions made to specific individuals, political organizations and candidates cannot be deducted.
✦ You cannot exchange the donations in turn for memberships, tickets etc. However, if the contributions entitle you to merchandise, goods and services, you can deduct only that amount that exceeds the fair market value of the benefit received.
✦ In case of tax-deductible donations for clothing, the clothes must be in good condition.
✦ To deduct a contribution by check, cash etc., a bank statement should be provided as a proof. If you have made a donation through a text message, a telephone bill can act as a proof.
✦ For contributions of $250 or more, you must have a bank record, payroll deduction record or a written acknowledgment from the organization.
✦ If your donations exceed $500 in a year, an IRS form 8283 should be attached to your tax return form.
✦ If your annual donations exceed $5000, a Section B of the form 8283 needs to be filled, which requires the appraisal of a qualified appraiser.
(Source: Internal Revenue Service, IRS Tax Deductible Donations)
FAQs about Tax Deductible Donations
✦ Which organizations are tax-deductible?
An organization is said to be tax-deductible if it meets all the criteria laid down by Internal Revenue Service Department.
✦ How can I get information from IRS?
You need to send a written application to the Disclosure Officer at your nearest IRS District Office. To have more clarity, write the official name of the charity and as well as the exact location.
✦ Which donations are tax-deductible?
Donations in terms of money, property, vehicles, clothing, footwear, creative works, etc. come under tax-deductible donations.
✦ Which organizations do not qualify for charitable donation?
The organizations which generally do not qualify for a charitable deduction are sports-clubs, for-profit organizations, recreational clubs, lottery etc., donations to candidates during elections are not considered deductible as these fall into non-tax-deductible political donations.
✦ How much can be deducted for non-cash donations to a charity?
There are strict guidelines for donations which are not in cash. You have to ensure that you have kept a receipt and written acknowledgment of the donations. If the fair market value of the donation is more than $500, then you should attach IRS Form 8283 (for non-cash).
✦ What do we mean by fair market value?
The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.(Internal Revenue Service)
✦ What is the highest limit on which tax deductions for donations can be sought?
One can deduct up to half of the Adjusted Gross income, but it will be better to consult a tax adviser on which limit applies for you.
The good thing about tax-deductible donations is that your money is going to someone who is in desperate need. For a better tax planning, always itemize as & when you make a donation. It proves extremely useful when filing returns for taxes. The tax deductions for donations is a win-win situation, both for you and the government. I hope this article on tax deductible donations will help you in your tax planning.