Charity feels good — the undeniable sense of contributing to something important drives most of us.
According to Define Financial:
- 60% of American Households participate in some kind of charity each year
- 2020 saw a 20% increase YoY in financial contributions to charity for a total of $471 BILLION to charities.
And the best news? Charity continues to come from a place of caring, with the LEAST likely reason for donating being to collect a tax break.
To the newbies of tax filing (Gen Z & Gen Alpha, they’re coming!), you may be surprised to know that charitable contributions aren’t just beneficial to the cause — they can lower your tax burden! And while the true benefit of charity is to help, you shouldn’t discount the impact of those contributions come tax season.
What Qualifies as a Charitable Tax Deduction?
Simply put, any charitable donation to a 501(c)3 can be claimed as a deduction. A 501(c)3 is the US Internal Revenue code for nonprofit organizations that entitles those entities to federal tax exempt status. These include public charities and privately-held foundations. With many charities offering online portals for donations, you will be able to determine directly from their website if they qualify for 501(c)3 exemption.
Cash Contributions
As long as you're tracking & keeping receipts of your donations, you’ll be able to easily deduct your contributions on your taxes. Often, up to 60% of your adjusted gross income can be deducted. IRS Publication 526 outlines this well, with qualified contributions including:
- Religious Organizations
- Nonprofit Schools
- Nonprofit Hospitals
- All qualified 501(c)3 organizations
- Veterans Organizations
- Federal, State, and Local Government entities (Public Parks, National Parks, Restoration Efforts, etc.)
- Out-Of-Pocket Expenses from volunteer events
Non-Cash Contributions:
Some organizations accept donations of non-cash items like clothing, shoes, and even vehicles. These are still tax-deductibe donations! When donating a physical item, you can claim their “fair market value” on your taxes. Use this table from the IRS to determine your FMV Estimate.
Reporting Contributions
Charitable contributions can be reported on Schedule A, Form 1040, Lines 11-14.
Non-Cash Contributions can also be filed on your Schedule A, but may require supplementation on Form 8283. This is especially true for deductions over $500 and $5,000.
Non-Cash Contributions of vehicles may require Form 1098-C
It is VERY important that you keep track of all contributions; keeping them organized will help you when it comes time to report. Receipts that include your name are especially important as a means of verifying your contribution.
There are quite a few forms to look through, but fret not! The more organized you are, the better chance your tax professional will be able to file on time and get you those deductions!
Remember: charity is a crucial part of our society, and makes a difference in millions of lives every day.
Seeking assistance with tax strategy? Talk to an LPSC advisor today.
SOURCES:
https://www.nerdwallet.com/article/taxes/tax-deductible-donations-charity
https://www.usa.gov/donate-to-charity
https://www.definefinancial.com/blog/charitable-giving-statistics/
https://www.irs.gov/publications/p561