Save on Your Taxes with Year-End Charitable Giving
Although your charitable nature surely isn’t solely motivated by the potential for a tax deduction, saving a few bucks on your taxes is a nice side benefit. To make sure you maximize the tax value of any of your planned philanthropy before the end of the year, consider the following guidelines:
To Whom Can I Make Charitable Donations?
Although Frankie, your buddy from high school, might be down and out on his luck, neither your decision to buy him lunch nor the $50 you gave him while no one else was looking will qualify as a tax deduction. That’s because Frankie isn’t a charity – at least not in the eyes of the Internal Revenue Service (IRS).
Only donations to qualified charities are potentially deductible. You can find a list of qualified charities on the IRS web site here, but note that religious organizations and government agencies may qualify even if they are not listed.
What Kind of Donations Are Deductible?
To be potentially deductible, you can give a qualified charitable organization money, whether by cash, check, or credit card charge. You can also give a charity physical objects, such as clothes, kitchen items, or old furniture. Just about anything that has legitimate value is potentially deductible.
Keep in mind that the physical objects must be in at least “good” condition—no deduction is available for those socks with just a few too many holes in them. TurboTax ItsDeductible will properly track and value your donated items.
By When Must I make My Donation to Be Able to Potentially Deduct it in 2013?
Donations made by December 31, 2013 are deductible on your 2013 tax return you will file in 2014. To be considered “made by December 31,” a cash gift must be received by the end of the year. A check must be mailed before the end of the year, even if it is not deposited by the receiving organization until January.
If you choose to make a gift by credit card, the charge must occur by December 31. Such a donation will count as a potential 2013 tax deduction even though you probably won’t actually pay the credit card bill until early 2014. As to physical items you donate, each must be received by the qualifying charity prior to year end to qualify as a potential tax deduction.
What Proof Do I Need of My Charitable Donations?
Ideally, you should receive documentation for every gift you make. In addition, all cash and physical gifts above $250 require a receipt to be potentially deductible.
Why Do You Keep Saying “Potentially” Deductible Instead of Just “Deductible?” Are You Mincing Words?
Even if your donation meets all of the requirements discussed above, your donations still might not lead tax savings. That is because not everyone is eligible to deduct their qualifying charitable contributions.
Only those who itemize their deductions can benefit from the charitable contribution deduction, however if you have other itemized deductions like home mortgage interest you may be able to take itemized deductions instead of standard deductions just by not forgetting your itemized deductions.
Regardless, TurboTax will compare the total of your itemized deductions to the standard deduction and give you the one that gives you the most tax savings. You don’t need to worry about how to figure out which deduction gives you the most tax savings.
Charitable giving is an important part of society and benefits you and the recipient in ways difficult to quantify at the time you make the actual gift. With the tips above, hopefully you will now know what charitable donations will help those in need and give you more money in your pocket.