Navigating Tax Regulations: Charitable Donations
3, May, 2019
Navigating Tax Regulations: Charitable Donations
Author - Phil Baker

Reducing your tax liability during tax season is a huge priority. By maximizing the way you spend your income during the year, you can ensure you pay a fair tax bill. One of the expenses that can impact your tax bill is charitable contributions. These include money, gifts, or volunteer time contributed to a registered non-profit.
By reporting your charitable contributions on your tax return for the year, you can lower your tax liability. However, navigating charitable donations on your taxes can be confusing. In this guide, we'll break down everything you need to know about reporting charitable contributions on your taxes.

First Things First: Standard Deduction vs. Itemized Deductions

The first thing you need to know before you start calculating your charitable donations is which deduction you are taking. A standard deduction is a standardized amount that is deducted from your tax liability. This is determined by your filing status and income. Here's a breakdown of the standard deductions based on the filing status:

  • Single and married filing separate taxpayers: $12,000 standard deduction
  • Married filing jointly taxpayers: $24,000 standard deduction
  • Head of household taxpayers: $18,000 standard deduction

In contrast, itemized deductions are exactly what they sound like: your eligible expenses for the year are compiled together and decrease your taxable income by that amount. Your unique spending habits, employment, and income will determine whether or not you take a standard deduction or itemized deduction.
The biggest thing to keep in mind is that you should always run the numbers on both sides. Whichever one adds up to more is the deduction you should take. This will make sure you get the lowest tax liability possible. If you do choose to tax the standard deduction, you can't claim charitable contributions.
These are itemized deductions that are only used to decrease your tax liability if you choose to take the itemized deductions route. It's best to determine what deduction method you will take at the beginning of the year. If you predict that a standard deduction will be your best bet, charitable donations during the year won't offer any tax benefit for you.

Charitable Donations Must Be To A Registered Non-Profit

If you've decided that itemized deductions are for you, make sure your charitable donations are to a registered non-profit that is approved by the IRS. Otherwise, your donation won't count for a tax benefit. To check whether the organization you're interested in donating to is approved by the IRS, you can use this tool.

Cash Is Not King

Unfortunately, dropping cash in an offering bucket isn't the most profitable way to donate to a non-profit organization. Make sure you keep a record of your charitable contributions by donating online or obtaining a canceled check, bank record, or receipt from the organization you're donating to.

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When Do You Claim Charitable Contributions

You can claim charitable donations on the year that you make them, for instance, if you are filing your 2019 tax returns, any donations made before December 31st, 2019 are deductible for your 2019 tax return.

Donations Have A Limit

The amount of charitable donations you can deduct has a limit. While you can donate more than the limit, the charitable deduction limit is fifty percent of your adjusted gross income. Here's how you can determine your charitable donations tax deduction limit for monetary donations:

  1. Calculate your gross income by adding up all of your income before tax. You can use your W-2 forms for this.
  2. Once you have this number, deduct your above-the-line deductions. This is your Adjusted Gross Income.
  3. Multiply this number by 0.5.
  4. The end result is the highest deduction you can claim on your tax return.

Gifts Are Deductible As Well

Donations don't have to just be monetary, they can be tangible gifts. However, calculating your deductions based on gifts is a little different than calculating money-based charitable deductions.

Appreciated Property

Appreciated property is an asset that has a fair market value that is higher than what you originally paid for it. This can include stocks, investments, real estate, classic cars, artwork, antiques, or even jewelry. If you've owned the appreciated property for more than a year, you can deduct the full market value from your taxes.
If you've owned it less than a year, you can deduct the amount you paid for it. When totaling your appreciated property charitable deductions, it cannot exceed 30% of your Adjusted Gross Income.

Household Items

Used household items might not be one of the best charitable donations to utilize for tax deductions. You can only deduct the fair market value for the item you donate, which could be a lot lower than you paid for it outright.

Vehicles

Donated vehicles, if valued at more than $500, have a deduction limit, of the money it brings in at auction. Once the organization sells your car, they'll provide you with a Form 1098-C that will show you how much the vehicle sold for. This is the amount you can deduct from your taxes.

Volunteer Time Can Be Deducted

Volunteer time and expenses can be deducted, too. While you can't deduct the value of your work, you can deduct miles driven, supplies, uniforms, parking, tolls, public transportation costs, and other expenses incurred from volunteering your time. Miles driven are calculated at fourteen cents per mile. Keep track of any costs for your volunteer time with receipts to make tax season easier.

Charitable Contributions Have Tax Benefits, But Don't Benefit Everyone

Whether or not charitable contributions will benefit you during the year depends on the amount you donated in total and which deduction method will save you the most money on your taxes. It's best to determine whether you'll take standard or itemized deductions at the beginning of the year to figure out if charitable donations will benefit you.
Always keep track of your donations with receipts and records during the year. This will help tremendously during tax season and ensure you're deducting the most you possibly can off of your tax bill. As a small business owner, tax season is always easier with documentation and records.
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