Now that the holiday season is well under way, charitable giving is on the rise. It's the end of the year and people want to make sure their giving is done before a new calendar year. We spend time with our families, we think about others and want to have an impact on the world around us. While knowing your donations are helping out someone in need is reason enough to give, the tax benefits of charitable giving are definitely a plus. Here are some things to keep in mind when opening your heart and checkbook this holiday season:
- There are limits to how much you can deduct, (but they're very high.) For most, the limits on charitable contributions don't apply. Only if you contribute more than 20% of your AGI (adjusted gross income) should you be concerned about donation limits. If the contribution is made to a charity, the deduction is limited to 50% of your contribution base. For example, if you have an adjusted gross income of $100,000, your deduction limit for that year is $50,000.
- Rules exist for non-cash donations. When you donate non-cash items to charity, the IRS expects you to use the fair market value in determining the deduction. You must provide a written description of non-cash items valued at more than $500. For items valued at more than $5,000 an appraisal is required. You should clearly contribute, rather than throw out, old clothes, furniture, and equipment that you no longer use. However, bear in mind the condition of your donated goods. The IRS only accepts deductions for donations of clothing and household items that are in "good condition or better."
- You can't deduct the value of your time. The Internal Revenue Service does not allow a charitable deduction for volunteering your services. However, most out of pocket expenses relating to volunteering are allowed as long as they are not reimbursed or considered personal. Some out of pocket charitable expenses might include the cost of transportation (including parking fees and tolls); supplies used; travel expenses; uniforms or other related clothing worn as part of your service.
- You need to maintain proper documentation of your contributions. If you want to claim a charitable deduction for a cash gift, then you must be prepared to verify your claim. In other words, you cannot deduct the spare coins dropped in a charity’s bucket without proper documentation. If you are audited, the IRS will only accept one of the following to verify a monetary gift: credit card or bank statement, a canceled check, or a written acknowledgment from the charity.
While tax savings aren’t the only reason you should choose to donate, it is most definitely advantageous (just save those receipts!). If you’d like to know more about how your charitable donations can help you during tax time, give us a call. 850-460-2222
BluePoint Financial, LLC
151 Regions Way Suite 6B
Destin, FL 32541