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Top Tax Incentives for Giving to Charity

Besides helping you to feel good and supporting a worthy cause, charities have an added benefit of also providing tax incentives. Here is a look at some of the benefits that you can get by making charitable contributions.

First off, many donations to qualified organizations can be used as an income tax itemized deduction. Your tax savings reduces the actual cost of the donation, so for people in higher income brackets this is particularly attractive. Anyone can benefit with itemized deductions, but the more money you make and the larger the donation the more of a deduction you will get.

The contribution to a charity is deductible in the year it is paid. So if you pay a donation with your credit card, you can count it on that year’s tax return – even if you do not pay the credit card off until the following year.

Nearly all charitable organizations qualify for the deduction; however a select few are not. These include contributions to foreign governments, foreign charities, and some private foundations. You will want to look into this ahead of time. Keep in mind that a charity can lose its status if a large part of its activities are used in propaganda or influencing legislation. Also, donations to needy individuals are not eligible for deduction.

There are some limits to the amount of charitable donations that you can deduct, but they are very high. The only time you would need to be concerned is if your contributions equal more than 20% of your adjusted gross income. For public charity, the amount is limited to 50% of your adjusted gross income. If you have concerns about going over the limit, you should consider talking to your tax advisor to see what your options are. Sometimes the excess can be carried over for later years.

Charitable donations are not limited to strictly cash. You can use non-cash donations as well for deductions. You can often get the full fair market value of the property that you donate. So if the property is appreciated, you are in a sense receiving a deduction on amount that was not reported as income. Many items qualify, including clothes, furniture, and other equipment. However, the IRS states that these items should be in “good condition or better” in order to qualify. Goodwill, the Salvation Army, and other organizations will give you receipts for donations worth over $1,000.

In order to receive the maximum deductions, make sure to save your receipts. You cannot qualify a contribution greater than $250 without written proof. You need a receipt from the organization for all donations, including cash ones. Cancelled checks and credit card statements can also be helpful in case of an audit.

Another good thing about charitable donations and their tax benefits is that there are so many organizations that you can choose to donate to. So you can support almost any cause that you feel strongly about and still receive benefits while you give. This includes: churches and religious organizations, including missionaries with U.S. bases; educational organizations that are tax exempt; certain medical research organizations and hospitals that are tax exempt; government units; a community chest or other publicly supported organizations; private foundations if they distribute all the contributions within two and half months past the end of the fiscal year; private foundations that pool donations into common funds; and membership organizations that rely on the general public for at least a third of their contributions.

So whether you want to save the whales, find a cure for cancer, or support your local church, there are plenty of ways to do it. Doing charitable donations are one way that you can do this and also receive something beyond warm fuzzy feelings in return.