People give to their favorite charities because they want to help. That said, your philanthropy also might help you save a few tax dollars.
Here are answers to six commonly asked questions about donating and deducting your gift on your tax return.
1. How do I get a tax deduction for my donation?
You can write off your charitable donations only if you itemize. This means filing a Schedule A with the long Form 1040. If you claim the standard deduction, your generosity still will help the charities to which you give, but it will do you no tax good.
2. How much do I have to give to make it worth my time to itemize?
You should itemize if your tax deductible expenses, including your charitable donations, come to more than your standard deduction amount.
In addition to charitable gifts, the major itemized deductions for most taxpayers are a portion of medical and dental expenses; state sales and property taxes; and mortgage interest.
Once you total those itemized amounts, compare them to the standard deduction for your filing status. For 2016 returns due in April they are:
• $6,300 for single filers,
• $9,300 for those who are heads of households, and
• $12,600 for married couples who file a joint tax return.
If your itemized deductions are less than your standard amount, you shouldn’t itemize. And that means you can’t claim your charitable gifts on your taxes.
3. How do I determine what an in-kind donation, such as household goods given to Goodwill, is worth?
Many nonprofit groups welcome gifts of personal property, like clothes your children have outgrown or household goods. Just make sure that the donated items are in good or better shape. Not only is that the right thing to do, it’s also a tax rule.
It is your responsibility to determine what your donated items are worth, but the Internal Revenue Service says you should assign the goods their fair market value at the time you donated them.
The IRS admits there are no fixed formulas or methods for determining a used item’s value. But, according to IRS Publication 561, you should use the property’s fair market value. This basically is the price for the item, in its current condition, that a willing buyer would pay a willing seller.
Think garage or yard sale pricing. Visit thrift or consignment shops to get an idea of what similar items are selling for there. There also are software programs that can help you determine the value of your goods. And Goodwill and the Salvation Army have donated goods valuation guidelines at their websites.
And speaking of garages, many charities also accept vehicle donations, which includes cars, boats and even airplanes. Determining the amount you can deduct here is a bit more complicated. Generally, your deduction is limited to what the nonprofit got when it sold your old car (or boat or plane). You should get a Form 1098-C or a similar statement from the charity with the details of how much you can deduct.
4. I bought tickets to a gala. How much of that is tax-deductible?
It’s a common practice to encourage donations by offering something in return, such as attendance at an event or a CD or tote bag. In these cases, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. The charity offering the contribution benefit typically tells you how much thank-you gift is worth, as well as the amount of your gift that is tax deductible.
5. I thought I gave to a nonprofit but the organization tells me my gift isn’t tax deductible. What IRS designation should a nonprofit have in order for it to be tax deductible?
The Internal Revenue Code only allows deductions for gifts made to groups that have been approved by the IRS. These IRS-qualified organizations are known by the section of the tax code — 501(c)(3) — under which they are authorized. Look for that code designation in the group’s material or on its website.
You can check a charity’s tax-approved status online at Charity Navigator, GuideStar and the IRS’ own search tool, Exempt Organizations Select Check.
6. This year, I plan on giving more. Is it better to give it all to one nonprofit or is it okay if I give to a few different ones?
You can give to as many charities as you wish. And generally, you can give as much as you wish.
Most financial and tax advisors, however, suggest having a philanthropic plan. This essentially is a giving budget that sets out who you want to give to and how much you want to give. Such a strategy helps you maximize your dollars without breaking your personal bank.
ABOUT THE AUTHOR: Kay Bell, an award-winning journalist and creator of the Don’t Mess With Taxes blog, has been writing about taxes for two decades. The native Texan’s work has appeared online, in print magazines, TV and radio broadcasts and in her FT Press/Pearson book “The Truth About Paying Fewer Taxes.”
Photo by Fabian Blank via Unsplash.com