6 Things to Know About Charitable Giving This Tax SeasonTom Anderson
We give to charity because it’s the right thing to do. But chartable gifts also make us happier. Researchers from Harvard University, Simon Fraser University and the University of British Columbia found that there was a positive correlation between charitable giving and happiness in 120 out of 136 countries they studied.
The U.S. was one of the countries with a strong link between giving and happiness and, not surprisingly, Americans are giving in near record amounts. The U.S. gave an estimated $358.4 billion to charity in 2014, which surpassed the peak giving level seen before the Great Recession, according to the most recent report from the Giving Institute.
These donations not only create a tremendous amount of social good (which is why CommonBond, my employer, has a social mission), they can also generate significant tax deductions if you know how to claim them. Here are six things to know about your charitable giving this tax season:
If you don’t itemize your tax return, you can’t get the deduction. Most Americans don’t itemize their tax returns. Nearly 70% of people take the standard income tax deduction rather than report all their eligible deductions to lower their taxable income and possibly generate a bigger tax break. You must itemize if you want your charitable gifts to make a difference on your tax return.
Keep good records. You’ll need receipts to itemize your deductions. A cell phone bill will work for text message donations as long as it shows the name of the receiving organization, the date of the contribution and the amount given. To claim a deduction for contributions of cash or property equaling $250 or more, you need a record of the transaction. That can be a bank statement, payroll deductions or a note from the charity where you gave. The record should clearly indicate whether the charity provided any goods or services in exchange for the gift.
Know what donations are tax-deductible. You have to give to a qualified organization to be eligible for the charitable giving deduction. You cannot deduct contributions made to individuals or political organizations and candidates. The IRS outlines all eligible organizations here. Reputable charities will give you a receipt for your donations and Charity Navigator can help you evaluate organizations before you donate for free.
Know the fair market value of your gift. Donations of property are usually valued at the fair market value of the property. Clothing and household items must be in good used condition to be deductible. Goodwill Industries International , a nonprofit that runs a global chain of thrift stores, provides a free valuation guide if you wondering the fair value of your old blazers ($6 to $12), pajamas ($2 to $10) and T-shirts ($1 to $6).
Big property gifts require more forms. According to the IRS, taxpayers donating property valued at more than $500 must also complete a Form 8283. And if you give more than $5,000 in property, you will need an assessment of fair value by a qualified appraiser to complete the form.
Understand the limits on deductions for each type of gift. There are limits on the charitable giving deduction based on your adjusted gross income, or your total gross income minus specific tax deductions. With cash donations to charities, generally you can deduct up to 50% of your adjusted gross income. With property donations, you can usually deduct 30% of your adjusted gross income. While the limits wont be a problem for most donors, it’s important to confirm for your personal financial situation.