Claiming Tax Deductions for Charitable Donations in the US
Tax season can be a complicated time, with numerous deductions and credits to consider. One of the items that many donors overlook is the possible tax benefits of giving to charitable organizations. In the United States, donations to qualified charitable organizations can be claimed as a deduction on Schedule A of your tax return. This article will guide you through the process of claiming these deductions effectively.
Requirements for Claiming Tax Deductions for Charitable Donations
To claim a tax deduction for charitable contributions, you need to meet several key requirements. First and foremost, your donation must be to a qualified tax-exempt organization. The IRS website offers a search tool to help you verify the organization's status. Additionally, your donation must be in the form of cash or property, and you must make the donation on an actual date, not through a pledge or promise.
1. Verify Eligibility
The first step is to ensure the organization you are considering donating to is eligible. Go to the Tax Exempt Organization Search tool provided by the IRS. Here, you can check if the organization holds 501(c)(3) status, which is necessary for tax-exempt charitable organizations.
It is also important to remember that some organizations, like churches and other religious organizations, do not need to obtain 501(c)(3) status but are considered qualified charities regardless. Other organizations that can be deducted from taxes include certain trusts and non-profit volunteer fire companies. Contributions to governments for things like parks and recreation facilities are also deductible.
2. Receipt for Donations
Another important aspect is to receive a contemporaneous acknowledgement from the organization for your donation. This means that the receipt must be issued at the time of the donation. This helps substantiate the donation and its value.
For large donations, especially in Canada, you may want to verify the charitable organization registration number with the Canada Revenue Agency (CRA) to ensure its legitimacy. This step is crucial in protecting against fraudulent organizations.
3. Meet Deduction Limitations
Your total contributions to charitable organizations must exceed the standard deduction to benefit from itemizing your deductions. For the tax year 2020, you can deduct up to $300 in cash donations for single, head of household, or married individuals filing separately. For married individuals filing jointly, this limit is $600. For the 2019 tax year, the additional standard deduction amount for the aged or blind is $1,300.
In general, your charitable donations are limited to 60% of your adjusted gross income (AGI). However, there are some limitations: contributions of appreciated capital gains assets can be deducted up to 20% of your AGI, and contributions to publicly traded stock can be limited to 30% of your AGI.
4. Recordkeeping Requirements
Your tax return may require detailed recordkeeping. This includes saving canceled checks, acknowledgment letters from the charity, and sometimes appraisals confirming the value of donated property. In the case of donations of property worth more than $500, you will need to file Form 8283 and attach it to your tax return.
It is also crucial to substantiate the fair market value of goods or property donated. This includes items like vehicles, boats, or even planes. Written acknowledgment from the charity is required for this type of gift.
Schedule A: More Than Just Charitable Donations
Schedule A of your tax return is not limited to charitable donations. It is used to claim all itemized deductions for the year. Other possible deductions include medical and dental expenses, state and local taxes, home mortgage interest, and insurance premiums. The total of your Schedule A deductions is then transferred to line 8 of the new 2018 Form 1040, or the equivalent form for your tax year, to calculate your taxable income.
Conclusion
Claiming a tax deduction for charitable donations can be a rewarding way to support your favorite causes while reducing your taxable income. By following the steps outlined in this article, you can ensure that you are making the most of this opportunity. Remember to verify the organization's status, keep thorough records, and understand the limitations and requirements. Your tax professional can provide additional guidance if needed.