Ask the Pros: Can You Write Off Charitable Gifts On Your Taxes?
By Jaden Miller , January 3 2020
One of the ways our systems encourage generosity is by allowing you to deduct qualified charitable gifts from your tax bill. Of course, you can't write off every nickel and dime you donate. There are all kinds of rules and limits applied. After all, it is the IRS we're talking about.
Are you looking for ways to lower your tax bill and give back to your community? Here's what to do if you want to make a tax-deductible donation.
1. Choose the Right Charity
The first step is relatively straightforward: choose a qualified recipient. Most 501(c)3 organizations in the United States qualify.
However, there is a long list of groups that don't count. That list includes almost every other 501(c) type of organization bar:
- 501(c)1 (Corporations Organized under Act of Congress)
- 501(c)8 (Fraternal Beneficiary Societies and Associations)
- 501(c)10 (Domestic Fraternal Societies and Associations)
In other words, you can give to a church or a credit union and get a deduction. However, you can't give to a social club (or 501(c)7) and still add it to your tax bill. You also can't write off your contributions to:
- Foreign charities
- Foreign governments
- Certain types of private foundations
If you're not sure whether the charity you want to give to will earn you a deduction, use a site like Charity Navigator to look it up and confirm. You should also ask the organization itself whether donations are tax-deductible.
Things To Keep In Mind When Giving
Tax-deductible donations don't count when you get something from the transaction. For example, you can't write off your Girl Scout cookies or buying a t-shirt from a charity. You should still do those things, and they benefit charities, but you can't add those gifts to your itemized deductions.
Additionally, political deductions don't count. You give to a cause or politician that you believe in and count it as your participation in the political process. However, they don't' fall under charitable or miscellaneous deductions whether you give them cash or buy their merchandise.
2. You Need To Itemize Your Deductions To Qualify
You can't just subtract your deductions from your tax bill. You need to go through the trouble of itemizing all your deductions to receive it. For some people, itemizing makes no sense. If when you itemize your deductions, your itemized deductions fall below the standard deduction, then you will pay more in taxes than if you didn't itemize.
You should only itemize when your list of deductions is going to be higher than your standard deduction. Are you giving noncash contributions? You also need to fill out Form 8283. You can learn more about this form under the car donation section.
3. You Can Write-Off Charitable Gifts In The Year You Donate - Only
Why do charitable deductions spike around Christmas? Is it the season of giving? Or does the holiday also lie at the end of the tax year, which leaves people scrambling to get all their charitable deductions finalized? You can only write off a deduction for the year in which you gave it. If you put it on a credit card in 2018 and paid it in 2019, then it still counts for 2018.
However, if you sign up to donate next year, then it doesn't count. Post-dated checks will count in the tax year that they are dated. However, the deductions don't roll over even if you give every year. In that case, you write a new deduction (and use a new receipt).
There is how an exception to the rollover rule.
If you are 70 1/12 years old, you can direct money from your IRA to charitable organizations, and it won't count as income that year. You need to follow the rules (use a traditional or Roth IRA and stick to qualified charities), and you can't receive anything in exchange for your donation. The rollover benefit is available for contributions up to $100,000.
4. Full Fair-Market Value Applies to Non-Cash Donations
Are you donating furniture to GoodWill? A computer to a 501(c)3? Then, you can write off the full-fair market value of the property. However, there are rules. For example, if you donate furniture, then it needs to be in "good condition or better" to count as a write-off. You need to be particularly careful with vehicles.
Although donating a car can save you tons on your taxes, the IRS is particularly wary of vehicle donations.
How To Deduct A Car From Your Taxes
You need to find out how much the charity sold the car for and its fair market value (usually with the Kelley Blue Book). You typically get the charity's sale price on Form 1098-3. If the charity sells the car at a price under its fair market value, then you can only write off the sale price. This remains true even if there is a difference of thousands of dollars.
To claim the deduction, you need to add it to your itemized deductions. If the car deduction is over $500, then you need to also complete IRS Form 8283. Fill in Section A if the deduction sits between $501 and $5,000. Once your deduction is over $5,000, then you need to complete Section B and provide a written appraisal as evidence.
5. You Need To Keep Your Receipts
You need to keep every donation receipt if you want to claim it. If you pay with a credit card or debit card, then the IRS will accept these records, too. If you can't produce the receipts and you get audited, then the IRS will remove the deduction, and your tax bill will grow. You then need to pay your overdue tax and the interest and fees associated with it.
You'll need to hold on to the receipts as long as you keep your other tax documents - for seven years.
Are You Making The Most Of Your Deductions?
If you intend to itemize your taxes, charitable gifts can push your deductions above the general tax credit and save you real money. However, those deductions need to follow IRS guidelines. You can only count donations for the sake of charity and only apply them in the year you donated.
Do you wonder how much more you could save? Generate your paystub today to see how much you pay in taxes.