How to Deduct Charitable Contributions from Your Taxes

There is nothing like the warm feeling you get when you give to someone in need. Well, the IRS agrees and lets you deduct your charitable contributions from your taxes. Every dollar you donate to a qualified organization, reduces your taxable income dollar for dollar. This means that if you are in the 25% tax bracket, donating $100 will reduce the taxes you owe by $25.

As with all things related to taxes, there are rules that you have to follow if you want to deduct your charitable contributions.

• You must itemize your taxes
• The donation must be made before the end of the year
  
• You must donate to a qualified organization
• You need to keep a record of the donation
• Your donation must meet certain qualifications
• The value of your total donations must be under a certain percentage of your income

Let’s take a closer look at each of these rules.

Itemizing Your Taxes

You can’t claim the charitable contribution deduction on Form 1040A (the short form) or 1040EZ. Instead, you must fill out Form 1040 (the long form) and list your donations on schedule A.

The Time Frame for Charitable Donations

Your donation must be made before the end of the year if you want to deduct it from your taxes; promises or pledges to donate don't count. If you wrote a check or charged your credit card before December 31, you can still claim the charitable donation on your taxes for the current year, even if the check was not cashed or you don't pay your credit card bill until January.

Not every donation you make counts as a charitable contribution as far as taxes are concerned, even if it was for a good cause. The IRS only counts donations to organizations that have been granted 501(c)(3) non-profit status. This means that the bag of clothing you gave to the family down the street does not count as a charitable contribution according the IRS, no matter how needy the family was.

If you want to know whether or not an organization has 501(c)3 status, you can simply ask them, or you can check Publication 78 from the IRS. Some examples of qualified organizations are churches, public charities, non-profit educational organizations, museums, hospitals, research organizations, public parks, recreational facilities, youth sports programs and libraries. Not all organizations that fall under the above categories are recognized as 501(c)3 non-profit organizations, so be sure to check before you donate.

Good record keeping is essential when it comes to charitable contributions. The past several years, the IRS has become more strict about the types of records it requires for your charitable contributions. You can no longer make small donations here and there without getting a receipt and expect the IRS to honor your claims. The larger the donation you make, the more documentation you will need to prove to the IRS that you made the donation and that the value was accurate. Here is a summary of the record keeping rules you need to follow to claim charitable contributions on your taxes.

When you are performing a service, you may have to pay some of your expenses out of pocket. For example, you may have to pay for gas, make photocopies or provide some supplies. As long as these expenses were necessary for performing the service and were not reimbursed by the organization, they are considered charitable donations and can be deducted from your taxes.

You can also deduct the cost of traveling to and from a charity or event for the purpose of providing service. For example, if you are a boy scout leader, you can deduct what you spend on gas to get to and from boy scout meetings. If you don't want to keep track of your gas costs, you can use the standard mileage rate of $0.14 per mile to determine how much you should deduct. Keep in mind that you may not be able to deduct your travel expenses if part of your trip was for your own needs or enjoyment rather than solely to provide service.

You should get a receipt if at all possible for the expenses you incurred during your service. For things that you can’t get a receipt for, like car mileage, keep an accurate record with the beginning and ending odometer readings, the date and the reason for the travel. You will also need a written statement from the organization with a description of the service you performed, if you were compensated in any way and the value of the compensation.

Once upon a time, you could donate your car to charity and simply deduct the fair market value. In 2005, however, the IRS changed the rules so that you can only deduct what the charity is able to sell it for, regardless of what car valuation guides like Kelley's Bluebook say your car is worth. This means that if you donate a car that is worth $3000, but the charity sells it for $1000, you can only claim $1000 on your taxes. The charity has 30 days to give you a bill of sale; keep this document, because you will have to send a copy of it with your tax return.

There are a few exceptions to this rule. If your donated car is worth less then $500, you can simple deduct the fair market value. Take pictures of your vehicle to document it's condition and get a receipt from the charity. You can also deduct the fair market value of your car from your taxes if the charity uses it for their own needs or gives it to someone else instead of selling it. If the charity does not sell the car, they will send you a letter within 30 days acknowledging the donation. You can then use an online car valuation guide to determine how much you can deduct from your taxes for your car donation. Of course, if your car is valued at more than $5000, you would still need to get an appraisal.

Now that you know who you can donate to and what records to keep, what kinds of things can you actually donate? Here is a partial list of things you can claim as charitable donations on your tax return.

• Cash
• Household items in good or better condition
• Donations to your child’s school
• PTA dues
• Travel expenses to and from a charity or event
• Out-of-pocket expenses for volunteer work
• Appreciated value of donated stocks
• Cost of uniforms required to perform the service
  

Things you can’t deduct as charitable donations:

• Value of your time
• Value of your services
  
• HOA dues
• Payments to social clubs or professional organizations
• Donations to a political party or campaign
• Donations to individual people
• Childcare, even if it was necessary to perform the service
• Payments or donations to for-profit schools, hospitals or research institutions
  

Please remember that you need to subtract the value of anything you got in return for your donation from the amount that you claim. For example, if you purchased tickets to a charity dinner, you would need to subtract the value of the dinner from the price you paid for the tickets.

The IRS limits how much you can donate each year to a percentage of your adjusted gross income. You can make a total cash contribution of up to 50% of your AGI and non-cash contributions are limited to 30% of your AGI. For capital gains assets (stocks, bonds and other investments), you are limited to 20% of your AGI.

If you have been particularly generous during the year and donated more than the allowed limit, you don’t have to lose your full deduction. The IRS allows you to carry over charitable contributions that exceed the limits to the following year for up to five years.

As stated above, you need to fill out Form 1040 and list your contributions on schedule A. If your total non-cash contributions were more than $500 during the year, you also need to fill out Form 8283 and attach it to your tax return. You don't have to turn in the receipts and records for your charitable donations, just keep them in a file in case you are audited.