tax breaks — July 25, 2016

4 Steps to Making Charitable Donations

by Susannah McQuitty

Food and clothes are great donation options for a tight budget.

If you’ve made (or plan to make) a donation to charity, you know the act is not just about a warm, fuzzy feeling. It’s putting a part of yourself into something much, much bigger.

Charitable donations are a lot more fulfilling than paying taxes, but in many ways they have similar goals, such as improving community resources and lending a helping hand during hard times. It makes sense, then, that when you give to a worthy cause, the government gives you a break on your taxes. After all, taxes are in place so that we can collectively support the resources we share and living standards we strive for as a nation.

So how do you get the tax break? Here are four steps you need to take when preparing to make a charitable donation.

1. Find an organization

For most people, this step is pretty easy. You have your own passions and goals, and if you’re thinking about giving to charity, you’ve probably already got one in mind.

It’s important to know a few things as you pick an organization. First, most charity organizations are eligible for the tax break, but not all are. Aside from individuals being ineligible donees, foreign and for-profit private organizations generally don’t qualify.

To make sure your charity of choice qualifies for the tax break, you can use the IRS's Exempt Organizations (EO) Select Check tool. Put in as much or as little info as you like, and you’ll get a list with the status of the charities.

You should also make sure that the charity you’re giving to is legit and meets your expectations for how your donated dollars are spent. There are plenty of scammers out there posing as non-profits, and some organizations might spend a disproportionate amount of your donation on overhead costs, like executive salaries and marketing.

Do a little digging on your charity to make sure they are a legitimate organization that qualifies to receive tax-deductible donations, and you’re ready to get started.

2. Decide what to give

What you actually donate to the charity can be as straightforward as cash or as odd as an old baseball card collection. Different organizations will have their preferences, but you’ve usually got a lot of options.

One thing that's important is knowing the worth of what you donate, if it’s not money. Clothes, electronics, food, and even big donations like cars and real estate must have a monetary worth attached, and I’ll explain why in a minute.

Food and groceries are easy to appraise, because you probably bought them recently (unless you’re finally getting rid of your Y2K canned goods). Items like clothes and electronics can be a bit tricky, though, because they are only worth their current value, not their original one. So you won’t be able to turn in that old iPhone 4 you’ve had laying around and expect it to be worth the $600 it cost when you bought it.

If you’re not sure how much your stuff is worth now, there are some great guidelines provided by companies like Salvation Army and Goodwill Industries. Check them out to make sure you don’t under- or overvalue your donations.

Bottom line, once you’ve picked what to donate, you need to assess how much it’s all worth, or have someone else appraise it for you.

3. Keep a record of your donations

As much as I’m sure the IRS would like to take your word on it (wink), you should keep proof of your donations for tax time. This can be in the form of a receipt from the charity, a cancelled check, or even bank statements. There has to be a clear indication of what you donated, how much it was worth, and when the donation took place.

For any non-monetary donations valued at more than $250, you will have to fill out a special form for the IRS when you file your taxes, Form 8283, to provide details (essentially proof) on the donation and its value.

No one has ever become poor from giving. – Helen Keller

The good news is that any donation you make in the year will count for that tax year. For example, if you write a check and give it to a charity in December, you can still count that money as donated even if they don’t cash it until January.

Deducting what you donated to charity can make a big difference in the amount you owe in tax, so keep track of your giving!

4. Itemize deductions when you do your taxes

Now, just because you’ve kept the paperwork doesn’t mean the IRS is going to know you donated until you tell them on your federal income tax return. What you’ll need to do is itemize your deductions, which means that you’ll report all allowable deductions on Schedule A, instead of using the default standard deduction amount.

You also need to be aware that, though you donated to charities, your total itemized deductions might not add up to more than your standard deduction. Additional popular itemized deductions are home mortgage interest, state and local income or sales taxes, property taxes, and real estate taxes.

If the total of your itemized deductions doesn’t provide a more favorable tax position than the standard deduction amount, there’s no point in itemizing.

standard deductions amounts

Luckily, you don’t have to figure all this out on your own. The interview will help you make the right choice.

The gift(s) that keep giving

Ultimately, charitable donations do a world of good for charities and donors alike. By taking advantage of the charitable donation deduction, contributors are encouraged to do more than drop a couple quarters in a bucket, and charities benefit from more substantial donations.

And that means more than a warm fuzzy feeling any day of the week.

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