Charitable donations of goods and money to qualified organizations can be deducted on your income taxes, lowering your taxable income. Deductions for charitable donations generally cannot exceed 60% of your adjusted gross income, though in some cases limits of 20%, 30% or 50% may apply. If you don't have a lot of cash, there are still many opportunities to donate and save money on taxes at the same time.
(For related reading, also take a look at Tax Deductions You May Be Missing.)
- Charitable giving can help those in need or support a worthy cause, but at the same time it can also lower your income tax expense.
- Eligible donations of cash as well as items are tax deductible, but be sure to keep donation receipts and that the recipient is a 503(c) charitable organization.
- The amount you can deduct in a given year is subject to limits, but you can often carry forward some of those unused deductions, again subject to eligibility.
Plan Your Giving
There are many tax planning opportunities with charitable donations that you can take advantage of to give you the largest deduction possible. If you know that you will be in a higher tax bracket next year than you were this year, you may look at holding off until next year when the deduction will be greater. Large charitable gifts should also be planned carefully in order to maximize the deduction and minimize your out-of-pocket cost.
For example, if you have $25,000 in taxable income this year and donate $15,000 to charity, you will receive the deduction for the whole gift, and what you save on taxes lowers the cost of the gift to you. If you donate more than $15,000, the excess will have to be carried over to the next taxation year and you won't have the benefit of that portion of the deduction for another 12 months.
Get a Receipt for Your Donations
Any cash donation over $250 requires written confirmation of the gift from the organization. The IRS only requires that you keep canceled checks or other records of the gift for smaller donations. However, getting a receipt from the charity every time you donate strengthens your tax records if you are audited. If you make a large donation and do not have or cannot find the receipt, it will be disallowed on audit. Set your record-keeping system up at the beginning of each year and file all donation receipts in the same place.
(To learn more about this topic, see Give To Charity: Slash Your Tax Payment.)
Donate Household Goods
If you want to save money on taxes, be charitable and clean out your basement at the same time, you can donate household goods rather than money to charities. You are allowed to donate goods at their estimated value at the time of donation. There are many charities and church organizations that accept donations of clothing and household items to give away or re-sell to those in need. The rules for non-cash donations are a little stricter. You must get a written receipt from the organization for all non-cash donations as well as prepare a list of items donated and their value.
For larger donations, more detailed record-keeping is required, including information on the purchase of the items. Donations of goods over $5,000 require an official appraisal.
Don't Forget Vehicle Expenses
If you volunteer for a charitable organization and have unreimbursed car expenses, you can claim them as a charitable gift if you have maintained excellent bookkeeping records. The miles that you drive in the year for the charity should be logged in a mileage log, including the date of each trip, the purpose of the trip and the total miles driven. You are allowed to claim either actual expenses or 14 cents per mile. The latter is much easier to track and report. You must also obtain a written confirmation from the charity for the volunteer driving.
Track Your Carryforwards Carefully
If you cannot deduct all of your charitable donations in a year because you have hit the maximum percentage of taxable income, you can carry them forward for up to five years, after which time, they expire and you can no longer use them. If you have tax carryforwards, track them carefully so that you use them up before expiration, if possible. If it appears that you are at risk of losing a balance carryforward, hold back on current year's donations and make sure you use up the older ones first.
The Bottom Line
Donating to charity is a great way to show your giving spirit and save money on your taxes at the same time. Even if you don't have a lot of money to give to charity, you can give your unwanted clothing and household items and still get a deduction.