Most of us want to give in order to help others. Charitable donations, whether they are in the form of cash, investments, or goods, can help others, and allow us to feel as though we are contributing in a meaningful and positive way.
Another benefit is that you can often take a tax deduction if you donate to charity. While you likely don’t donate just for the tax deduction, it is a nice bonus for your generosity. As you give, though, keep in mind these 5 tips:
1. Make Sure the Organization is Eligible
If you want to give to a worthy cause, it doesn’t matter whether or not the organization has the proper charitable credentials. However, if you want to give to a worthy cause and receive the tax deduction, you need to double check what qualifies. IRS Publication 526 offers insight into how you can give while receiving a tax deduction. You call the IRS at 1-877-829-5500, or you can use this tool.
2. Make Sure You Have the Proper Documentation
When you give, you need to have a record of the transaction. It doesn’t matter what you are giving, or how much; the IRS requires that you have documentation showing the organization’s name, the date, and the amount given. The good news is that your phone bill showing a text message donation is sufficient, as is a bank record or payroll deduction. Otherwise, ask for a receipt.
3. Donated Items Must be in Good Condition
You can deduct the value of items that you donate to a charitable organization, but you need to make sure the items are in good, usable condition. Charities don’t want to act as your trash disposal – and the IRS doesn’t consider goods in poor condition eligible for a tax deduction. Add up the value of the goods, and don’t forget to ask the organization for a receipt. Remember, too, that it is the current fair market value that is deducted, and not what you paid for the items.
4. You Can Get Two Tax Benefits for Donating Stock
If you decide to donate stock, you can receive two tax benefits. First of all, you don’t pay capital gains taxes on your increase when you donate stock. Second, you can deduct the entire current value of the gift from your taxes. So, if your stock was worth $100 when you bought it, and it has appreciated to $400, you can deduct the entire $400. If you are donating a losing stock, though, you are better off selling the stock and deducting the investment loss and then donating the cash for a charitable donation deduction.
5. Large Donations May Require Extra Forms
If you donate more than $500 in non-cash contributions over the course of the year, you will have to fill out Form 8283 to detail the transactions. Additionally, if you donate an item or a group of related/similar items that are worth more than $5,000, you will need to make sure to fill out Section B of that Form 8283, which requires that you have the items appraised. Be aware that there are different requirements when you donate your car, as well.