The holidays are a time for being thankful, and that often means giving back to organizations and causes that are important to you and your family. These charitable gifts might be able to earn you a tax deduction, so it’s important to understand all of the nuances that surround charitable giving and what it means for your tax bill.
Here are a few things to keep in mind as you make your end-of-the year gifts:
- It must be a qualified organization. Remember, in order to be deductible, the gifts must go to charitable groups that are approved by the IRS. You aren’t allowed to deduct donations to specific individuals or to political organizations.
- Deduct only what you gave. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in May but paid the charity only $200 by the end of the year, you can only deduct $200. Be sure to include credit card charges and payments by check in the year you donate to the charity, even if you don’t pay the credit card bill or draft from your bank account until next year.
- Here’s something new. Thanks to a change put in place by the CARES Act, taxpayers who don’t itemize their gifts may take a charitable deduction of up to $300 for cash contributions made to a qualified organization.
- Know what you can deduct. You can deduct cash contributions, and in most cases, the fair market value of most property you donate. Clothing and household items must be in “good used condition or better” to be deductible.
- Keep good records. Whether it’s a credit card statement or bank statement, be sure to keep a record of your contribution. If you made a donation through a text messaging campaign, keep your phone bill that includes the organization, date and donation amount.
- Speaking of good records. For contributions of $250 or more, you’ll need more than a bank record. You’ll have to have a dated and written receipt from the charity listing the dollar amount donated and whether the organization provided goods or services in exchange for the gift. If you donated large items, the receipt must include a description of the items and a good-faith estimate of value.
- Split the difference. If your contribution entitles you to receive merchandise, goods, or services, you can deduct the contribution amount that exceeds the fair market value of the benefit received.
At PADGETT BUSINESS SERVICES®, we have a trusted network of accountants, tax experts and business advisors that can help you navigate everything from end-of-the-year giving to putting together a tax plan that works for you. Contact your Padgett office today and let us help you reach your business goals.