As they say, good deeds are their own reward. Nevertheless, there’s nothing wrong with taking a tax deduction for a charitable donation.
Not surprisingly, the end of the year — an occasion when people prefer to summary loose ends — is a particularly popular time for giving. December takes the most truly effective spots for giving, with 18 percent of donations occurring for the reason that month.
And for many, a tax deduction sweetens the deal and makes their spirit even more generous.
Experts do mention that when you’re considering a request for a donation to a charity, do some research when you give. You want to learn as much as you are able to about the charity to ensure that your donation is tax deductible.
“Most people, given their druthers, wish to get the deduction,” said Wade Chessman, an avowed financial planner and owner of Chessman Wealth Strategies.
Pick up please Purple Heart donations but a tax deduction is not confirmed every time you open your wallet for a worthy cause.
Get the basic principles down
Generally, you can deduct as much as 50 percent of your adjusted gross income in charitable deductions to qualified organizations. Contributions to private foundations, veterans organizations and fraternal societies are limited to 30 percent of one’s adjusted gross income.
Bear in mind that you may also have a deduction for non-cash gifts, such as for example clothing, books and toys and even the price of ingredients for a large pot of chili for a homeless shelter.
“You are able to donate almost anything you can consider,” said Stephen Fishman, an attorney and composer of “Every Nonprofit’s Tax Guide.” However for items valued above $500, such as artwork, collectibles or automobiles, there exists a catch. You need to provide a relatively recent appraisal of the item’s value. The Internal Revenue Service “wants to make sure that the donation may be worth what the charity gets when it sells it,” Fishman said.
You will require a letter from the charitable organization you gave to for just about any Purple Heart Donations greater than $250, in the event you get audited.
“When people have a deduction, the onus is on the donor to prove that they made the deduction correctly,” said Eileen Heisman, CEO of the National Philanthropic Trust.
Furthermore, donations must be charitable gifts, not payment in trade for goods and services. In 2012, the IRS disallowed $22,000 in donations from a Texas couple, David and Verona Durden, with their church.
The reason why? The household could not prove how the money was used, and the church’s documentation didn’t state that the Durdens didn’t receive any goods or services in exchange for the donation.
To be able to take any donation, you must itemize your deductions and file a Schedule A.
Nonprofit or charity?
Typically, only donations to nonprofits organized underneath the IRS’s 501(c)(3) section are entitled to tax deductions.
“People use nonprofit and charity interchangeably, but they’re not similar,” said Heisman.
There are lots of nonprofits, such as social clubs and golf clubs, but they could not need tax-exempt status. If you rely on an organization’s mission and wish to guide it, then by all means do so. Just remember that may very well not get a deduction, Heisman explained.
“You will find around 30 types of nonprofits, but just one kind is a charity,” she added.
For instance, welfare and civic groups that are organized as 501(c)(4)s generally don’t qualify for a tax deduction. However, you will find two types of 501(c)(4) that: veterans’organizations with at least 90 percent war veteran membership and volunteer fire departments.
Get your timing right
To get a tax deduction for 2015, you should make your gift by Dec. 31. Even when your charity isn’t open that day — though many hire additional staff that day to accommodate procrastinators — you are able to still receive the deduction if your check is postmarked that day.
Things get a tad bit more complicated when you’re making non-cash gifts, however. Stocks are fairly straightforward. The date you sign over your shares to a charity could be the date your deduction is valid. Not so with mutual funds. There, the contribution is made on the date that shares are used in the charity. Normally it takes per week or maybe more to transfer shares. Illiquid assets such as real estate also take quite a while to transfer.
So leave yourself sufficient time to be sure those assets transfer over time for you to take a donation for this year.