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Year-End Charitable Contributions: Can (And Should) You Deduct Them?

Here's what you need to know

charity

This article originally appeared on Avvo.com.

This is a great time of the year to make charitable contributions. Not only will you help out a great cause, but you may also be able to deduct the amount you contributed from your tax return in April. Here’s what you need to know about making tax-deductible charitable contributions this season.

What charitable contributions are deductible?

Not all donations are tax-deductible; only those made to organizations the IRS has designated as exempt are eligible. Before you donate, or before you deduct, check on the IRS website to make sure the organization is exempt.

According to the IRS’s 2013 charitable giving guidelines, the types of organizations eligible for tax-deductible charitable contributions include:

  • Nonprofit organizations like the Red Cross or Goodwill
  • Nonprofit schools and hospitals
  • Religious organizations, including churches, temples, synagogues and mosques
  • Federal, state and local governments for public purposes

Contributions to individuals and to the following types of groups are not tax deductible:

  • Labor unions
  • For-profit groups
  • Homeowners associations
  • Lobbying groups
  • Candidates for public office
  • Political groups
  • Foreign organizations, except some Canadian, Mexican and Israeli groups that operate according to an income tax treaty with the U.S.

Can I deduct? Should I deduct?

You can deduct your contributions only if you’re itemizing deductions on your tax return by filling out a Form 1040 Schedule A. For some, it makes more sense to take the standard deduction at the 2014 base rate of $6,200 for those filing singly, $12,400 for married couples filing jointly and $9,100 for heads of households.

If you own a home, pay a lot of state or local tax and contribute a substantial amount to qualified organizations, look into itemizing to see if it makes sense for you. In some cases, you may find that the standard deduction actually saves you more.

If you do end up itemizing, make sure to keep track. The IRS requires donors to keep adequate records to substantiate charitable contributions. Don’t forget that contributions don’t have to be in the form of money; the fair market value of goods like clothing and household items can be deducted, too. Just make sure to get a receipt when you drop them off.

Limits of deductions

Of course, there are limits to giving, at least according to the IRS. In most cases, you can only deduct up to 50 percent of your adjusted gross income, or your AGI, for the year in which the contributions were made. If the amount exceeds that limit, you may carry over the un-deducted amount and report it on future tax returns for up to five years. For some types of organizations, contributions are deductible only up to 20 percent or 30 percent.

More exceptions: Taxpayers with high AGIs face additional limits on the total they may deduct. Contributions of capital gain property face additional restrictions. Farmers and ranchers making qualified conservation contributions have a limit of 100 percent rather than 50 percent.

In short, the tax code changes yearly and is complex; there are often exceptions to exceptions. Speak to a tax lawyer or tax accountant before filing your next return.

Time to contribute

Now that you know the tax implications of your upcoming deduction, it’s time to pick the charity. Check out our previous articles on how to avoid charity scams and select a worthwhile organization to donate to.

Avvo makes legal easier by providing free answers from lawyers, client reviews, and detailed profiles for 97% of all licensed attorneys in the U.S., so you can find the lawyer who’s right for you. Avvo Advocates write about legal issues in everyday life on the Avvo NakedLaw blog.

 

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