Give Now, Save Later: How Charitable Giving Affects Taxes

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by on December 15, 2012

Charity road sign

The end of the year brings festive feelings and a need to donate, considering it’s the holidays. There are some things donors need to remember, though. The urge to contribute to charitable causes comes with the need to give before the end of the year to qualify for tax deductions. And, unfortunately, charitable giving this time of year brings out scam artists willing to take advantage of a person’s generosity, so taking extra caution to protect your sensitive information is important.

First of all, verify the legitimacy of your chosen charity to ensure you don’t fall victim to fraud. LifeLock provides enhanced, online reporting of identity theft threats and advanced checking and savings account application alerts. Other identity theft protection providers may have a certain service that fits your needs, so do the research to find the right company.

Find Out Which Nonprofits are Qualified for Tax Purposes

The Internal Revenue Service (IRS) provides a link to verify an organization’s status. It no longer provides Publication 78, a master list of qualified organizations, but you can find out which organizations are tax exempt. According to the IRS, you also may verify an organization’s tax-exempt status and eligibility to receive tax-deductible charitable contributions by asking to see an IRS letter of proof. You can also confirm an organization’s status by calling the IRS (toll-free) at 1-877-829-5500.

Basically, a 501(c)(3) organization, according to the IRS, must not be organized or operated for the benefit of private interests. The organization must qualify as a charity under the IRS tax code. Even though you give money to a needy family, that doesn’t quality for a tax deduction. Charitable donations affect the amount of taxes owed in the form of an itemized tax deduction.

Adjusting Your Taxes

You start out with gross income when it’s tax-paying time, and this includes money earned throughout the year. After special deductions are made, gross income becomes net adjusted income. Then you can apply charitable contributions. Itemized deductions are subtracted from the net adjusted income to arrive at your taxable income. So, the more charitable donations you make, the more tax money you save. advises that you don’t gain any tax savings from charitable contributions unless you itemize deductions. Most people who don’t own homes don’t itemize, because their standard-deduction amount of $5,950 for singles or $11,900 for joint filers exceeds their total itemized deductions.

Documenting Donations

Proper documentation is a must. For cash contributions less than $250, you should get a written receipt from the organization showing its name, the date and place of the donation, and the amount given. For donations exceeding $250, you need a written acknowledgement from the charity, which should note the amount. If you gave an expensive item, the acknowledgement must describe it, but you, not the charity, must put a value on it.

If you contribute non-cash items worth more than $500, you must file Form 8283 (Non-cash Charitable Contributions) with your 1040. If your items are worth more than $5,000, you must obtain a written appraisal of the value and complete Section B of Form 8283. The appraiser and a representative of the charity then must sign the form.

This is a guest post from Marty Wolzen. Marty started his first LLC when he was 10; it was a car wash/kiddie daycare. Splash N Dash is still around, but he sold it to his brother so he could have more time to play golf and be a freelance writer for finance.


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