You want to make charitable donations, but do you know which donations are tax-deductible and which are not? This simple guide can help you figure out how to do good for others while saving on your taxes.
Donate Money or Items, Not Time or Services
While you can donate cash or material possessions and claim a tax deduction from these donations, you cannot estimate value to time or services provided, even if these are charitable from your perspective. Make sure you keep receipts of all cash donations and receipts of valuation from item donations.
Make Sure Your Donations Go to Eligible Organizations
Request proof from organizations that they are eligible to receive tax-deductible donations. You can look up most organizations on IRS Publication 78, but many churches and government organizations are not listed there, even though they are eligible. Ask if the organization is a class 501c3, and request a receipt. The organization should have the fact that it is a nonprofit (501c3) right on its letterhead.
Document Your Charitable Donations
While you need a receipt only for donations that value over $250, it's best to collect receipts for any donations of money or items so you will have sufficient records, especially if you have given to several organizations.
Use Caution When Establishing Value of a Donation
If you want your charitable donation to count as a tax deduction, you have to be careful when assigning monetary value to the item donated. For an auto donation, you'll need to factor in both the blue book price (used car valuation guide for buyers) and the condition of the vehicle. Make sure you get a formal appraisal done for anything valued at over $5,000, or you'll miss out on the deduction.
Make Sure You Claim the Donation in the Appropriate Year
Charitable donations are only tax deductible for the year in which the donation was paid. If you donated $500 to a church in December of 2008, but the event sponsored took place in January of 2009, make sure you take that deduction in 2008, or you'll miss out on the opportunity.
Every year I hope and expect to get a large tax refund when March comes around. We usually use our refund for a much-needed home improvement or a fun, family vacation. I do my best all year to keep track of paperwork, receipts, medical premiums and bills, and of course, my charitable donations.
Perhaps you have an unsightly old car taking up precious space in your driveway. Its rusty and you can't count on it to get your from here to there anymore. You've moved on and are driving a new vehicle.