Charitable Giving and Tax Deductions

The holiday season is upon us once again.   This time of year, many people are motivated to give to charities.  While there are many obvious benefits to charitable giving, one additional benefit to the giver is that their contribution might entitle them to a charitable contribution deduction against their income tax.

Deductions Depend on Tax Bracket

The gift to a charitable organization is entitled to a deduction if you itemize your deductions.  The cost of the donation is basically reduced by your tax savings.  As the income tax bracket increases, so does the amount of savings.  For example, the actual cost of a $100 donation from a person in the lowest tax bracket is $85.   That is, after the tax deduction, they have essentially only spent $85 for a $100 donation.  For a person in the highest bracket, the actual cost of a $100 donation is only $65.

Most charitable organizations will qualify for a charitable contribution deduction.  Gifts can be deducted only if they are made to a qualified recipient.  The website Charity Navigator  is one place you can look to see if a charity is a qualified recipient.  A charity can lose its status as such if it devotes a substantial part of its activities to influencing legislation or formulating propaganda.  However, as long as the political spending by the charity is insubstantial, the organization can maintain its status as a charity.

Donating Property

Additionally, you can deduct non-cash donations.  The fair market value of donated property is used when valuing the donation.  The IRS permits deductions for used clothing and household items as long as they are in good condition or better.  Remember to always get a receipt for your donations, whether it be personal property or cash.  Beginning in 2007, the IRS requires written documentation for all monetary donations.  In case of an audit, you must have some documentation, such as a cancelled check or a written acknowledgement by the charity.

If you have additional tax questions, please contact one of our offices and we would be happy to assist you.

Happy Holidays!