Preparing for Taxes: Deducting Charitable Donations

On Friday, I recommended that you avoid buying consumer goods to help a cause, and instead send a cash donation. If you’re able to itemize your tax returns, you get a nice bonus for your donation in the form of a tax deduction. You have to be careful that the organization you donate to actually qualifies for tax-exemption, but you can also deduct some non-cash donations and other surprising things. You might able to deduct far more than you expected!

Deducting Cash Donations

Most people know that cash donations to charities are tax-deductible, but not all groups qualify as charities, even if you think they do. In order for your donation to be deductible, the charity must be a 501(c) 3 organization. Political groups and lobbying groups do not qualify. For example, despite being an environmental organization, the Sierra Club is not tax-exempt because it’s a lobbying organization. You can’t deduct your donations to it. The Nature Conservancy is a tax-exempt organization that does not engage in extensive lobbying, therefore your donations are tax deductible. Charities are required to give you a receipt for your donation and it should say whether your deduction is deductible. Keep that receipt with your tax documents.

Deducting Non-Cash Donations

You can deduct the current value of donated items that are in good condition. Be reasonable in your estimates. The sweater you paid $100 for five years ago is probably only worth $10 now, not $100. If you’re donating high-value items, have them appraised first.

Deducting Things You Buy

Donations for which you receive something in return are not generally deductible. For example, buying raffle tickets for $1 each would not be deductible. You might be able to deduct a portion of a ticket to a $200 a plate charity dinner. Usually the organization will tell you the deductible amount on your dinner ticket, invitation, or receipt.

You can deduct the cost of supplies you donate to a charity or use as part of your volunteer work. For example, a ream of paper and an ink cartridge for printing flyers. You can also deduct the cost of a volunteer uniform if it’s not something you can wear for other uses and it’s required in order to volunteer.

Deducting Transportation Expenses.

You can deduct the cost of transportation and lodging while volunteering, unless you volunteer as part of a vacation, you can’t deduct the cost of your seven-day trip to Hawaii if you only volunteer for three hours. You could deduct the cost of the trip if you volunteered all seven days for a significant portion of the day.

If you drive to a volunteer location, you can deduct the cost of gas and oil. If you don’t save the receipt, you can calculate it at 14 cents per mile.

Non-Deductible Items

Many people who volunteer want to deduct the value of their time, but you can’t do that. You also can’t deduct your personal expenses, such as meals and babysitters, incurred while volunteering.

Deduction Limit

There are some exceptions, but in most cases you can’t deduct more than 50% of adjusted gross income. Most of us can’t afford to give that much. If you can afford to donate half your income, it might be time to talk to a financial adviser about how best to manage your donations.

Obviously, you should donate to a cause or support a charity because it’s important to you, not because you get a deduction. The deduction is just a nice bonus. But if you do qualify for a deduction, don’t skip that bonus.

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