With so many people facing difficult times right now due to the coronavirus pandemic and natural disasters such as the devastating fires and hurricanes, there are so many ways to help those in need. Whether you already gave to charity or you are considering giving, you may have questions about what charitable donations are tax-deductible.
What is a Tax-Deductible Charitable Contribution?
If you volunteer, give cash or non-cash items to a 501(c)(3) organization, your donation may be a tax-deductible charitable contribution. Before you donate, be sure to confirm that the organization you’re donating to is a registered 501(c)(3) organization. You can check to see if the organization you are going to make a donation to is a 501(c)(3) organization at the IRS web site. In short, you must give to a registered non-profit organization (not individual) which operates as a true charity to take a tax deduction for the donation.
Who Can Deduct a Charitable Donation?
Typically if you make a charitable donation to a qualified charity, you can deduct the contribution if you itemize your deductions. Said another way, those who take the standard deduction usually would not realize any tax savings as a result of gifts to charity, however, under the CARES Act, there is the addition of a new charitable deduction up to $300 on your 2020 taxes for your donations made to a 501(c)(3) organization even if you don’t itemize your deductions. This will be something for taxpayers to keep in mind since close to 90% of taxpayers now claim the standard deduction instead of itemizing and are no longer able to deduct charitable contributions under tax reform.
The CARES Act also temporarily eliminates the limit placed on the number of cash contributions you can deduct if you itemize your deductions. Usually, cash donations that you can deduct are limited to 60% of your adjusted gross income, but the CARES Act eliminates the limit for tax year 2020 returns(the ones you file in 2021).
Donating Cash vs. Donating Stuff
When you write a check, charge a donation, or simply provide cash to a charity, the amount of your potential deduction is easy to determine; it’s simply the amount you contributed. Sometimes, however, you might donate household items, such as old clothing or furniture. In that case, things are not so straightforward. Instead of being able to deduct what you paid for the items donated, you are limited to the amount they are worth.
A reasonable estimate, usually based on what you could get for your items at a thrift shop, is sufficient. TurboTax ItsDeductible will help you track and accurately value your donations in compliance with IRS guidelines to maximize your tax savings. No matter whether you donate cash or goods, be sure to get a receipt. If you donate something worth more than $250, a receipt is required.
Did the Charity Give You Anything?
If you receive something in exchange for your donation, like a nice meal or a gift card, you can only deduct your contribution to the extent it exceeds the value of what you received. So if you make a $150 donation to a charity which then provides you a meal valued at $50, your tax deduction is $100.
Fortunately, most charitable organizations provide you with a summary of the tax-deductible amount of your contribution when they send you a letter thanking you for your generosity.
Timing Your Donations
Whether you volunteer your time, give cash, non-cash goods, or give money by charging on a credit card, you can deduct your contribution in the year you make the donation and when the donation is delivered to the organization. Some methods used to donate are pretty cut and dry about when the donation is considered deductible, but there may be a few methods used, like via check, text message, or charge card where you may be wondering, “when is my donation considered made and tax-deductible?”
- Donations via check: The donation is considered delivered the date you mailed the check.
- Contributions via text message: Deductible in the year you send the text message if the contribution is charged to your telephone or wireless account.
- Credit card: Contributions charged on your bank credit card are deductible in the year you make the charge.
Don’t forget you can even make a donation on the last day of the year and receive tax savings while helping someone in need. A donation made in late December means tax savings on a return due less than four months later. A donation made the following January can’t be claimed until the following year.
While potential tax savings shouldn’t impact your charitable giving, it makes sense to be mindful of the opportunities provided by appropriate charitable tax planning. After all, the more you save when you donate, the more you can afford to donate again. With the coronavirus pandemic and the disasters occurring right now, it is the perfect time to show your generosity and give to your favorite charity.
TurboTax Has You Covered
Don’t worry about knowing these tax rules. TurboTax will ask simple questions about you and give you the tax deductions and credits you are eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.