How Your Donations Actually Save You Money?
We give because we care about people less fortunate than us and we also want to invest in those things that make our society better either today or in the future.
While our charitable contributions benefit others, the IRS also rewards us for having generous hearts. In general you can give money or property to a qualified charity and receive a federal tax deduction equal to the value up to a maximum of 20% of your adjusted gross income (AGI)*. For illustrative purposes, a family with an AGI of $50,000 and an approximate 15% tax rate could contribute up to $10,000 and save as much as $1,500 in taxes.
Qualifying charitable organizations include, but are not limited to:
- Red Cross
- United Way
- St Vincent Depaul
- Most non-profit educational organizations
- Non-profit hospitals or research facilities
- Non-profit organizations that maintain public parks and other recreational facilities
- Civil defense organizations
Property contributions can take many forms, but for most people this means clothing, household items, used cars and boats.
When determining the value of the goods you donate and reporting it, here are a couple of things to keep in mind:
- When reporting the value of the clothing you donate, determine the fair market value for clothing and household items. This is somewhat subjective, but a good rule of thumb is to consider the price the item would fetch at a rummage sale. Clothing must be in good use or better condition.
- In the case of autos or boats, there are a few valuation guides that can be referenced such as Kelly Blue Book or NADA or if you think the value is significant you may want to enlist the help of an appraiser.
- Regardless of the type of property contribution, make sure you have proper documentation for your tax files. Photographs, purchase receipts, magazine or newspaper articles and statements from recipients are usually accepted forms of documentation for the IRS.**
*You may be able to deduct up to a maximum of 50% of your AGI depending on the type of contributions you’re making.
**There are other types of property contributions that may be eligible as a deduction and in some cases special rules apply to the amount of the deduction.
Contact your tax advisor if you have any questions about contribution limits or the deductibility of a particular item.
Written by John Mulloy
This blog post is from the Author's perspective and doesn't speak for brightpeak financial. Contact brightpeak if you want to know more about brightpeak products, and keep in mind that they are not available in all states and there are some limitations (some exclusions and restrictions may apply).