The sense of making a difference in others’ lives is not the only benefit that comes from giving to charity. You can also claim tax benefits for your charitable contributions, saving you money for using your personal resources to help others. If you have given to one or more charitable groups this past year, ask your accountant about how these contributions will affect your tax bill. All contributions are deductible the year they are paid. You will also need to find out whether your chosen organization is tax deductible and provide documentation of your donation. Specific rules apply for donors who give more than 20% of their adjusted gross incomes to charity. If you have donated this much or more in the past year, talk to your accountant about how these rules may affect you. The actual cost of your donation is reduced by your tax savings. For example, the cost of a $100 donation is only $85 for an individual in the 15% tax bracket.
Under section 170(c) of the Internal Revenue Code, you may deduct the charitable contributions you make to any of the following types of organizations:
- Any state or possession of the United States, or a political subdivision within a state or possession, if the donation is made exclusively for the public’s benefit. This includes donations to the District of Columbia.
- Any corporation, trust, fund, community chest, or foundation organized or created in the United States, the District of Columbia, or one of the United States’ possessions for the purposes of charity, religion, education, science, literature, or the prevention of cruelty to animals.
- Any religious organization.
- Any organization that benefits war veterans, such as a post, trust, auxiliary, or foundation organized in the United States or one of its possessions.
- Any nonprofit volunteer fire company.
- Any civil defense organization under federal, state, or local law.
- Any domestic fraternal society. This type of donation is only qualified if the contribution is to be used for charitable reasons rather than profit.
- Any nonprofit cemetery company, but only if the contribution is to be used for the perpetual care of the entire cemetery, rather than a specific lot or crypt.
Donating Non-Monetary Goods
Some individuals donate in non-financial ways, such as by giving tangible items. If you donate an item to a charitable organization, make sure you get a receipt that states your donation, its value, and the date of the transaction. An example of this type of donation is giving clothing to the Salvation Army.
Limits to Deductions
The limits on how much you may deduct from your tax bill for charitable contributions are very high and the average individual does not need to worry about them. When you meet with your accountant to work out your yearly taxes, ask him or her about these limits and whether or not your contributions reach them.
Giving for The Benefit of All
When you donate to charity, you are doing so much more than saving yourself some money on your taxes. You are working to make dreams possible for individuals with fewer resources. No matter how much money you are able to deduct from your tax bill, its value is miniscule compared to the difference you are making in others’ lives.