For many people, this time of the year is the best time to give back to others and donate to charities!
Donations are oftentimes tax deductible and I want to explain to you briefly how you can get the most taxes benefits for the donations you make.
Tax deductible donations are contributions of money or goods to a tax-exempt organization such as a charity. Tax deductible donations can reduce taxable income. To claim tax deductible donations on your taxes, you must itemize on your tax return by filing Schedule A of IRS Form 1040 or 1040-SR.
But for the 2020 tax year, there's a twist: you can now deduct up to $300 of cash donations without having to itemize. This is called an "above the line" deduction.
How much can you deduct?
In general, you can deduct up to 60% of your adjusted gross income via charitable donations (100% if the gifts are in cash), but you may be limited to 20%, 30% or 50% depending on the type of contribution and the organization (contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations come with a lower limit, for instance). IRS Publication 526 has the details.
For this year you should know 2 important things:
- For the 2020 tax year, you can deduct up to $300 of cash donations without having to itemize. This is called an "above the line" deduction.
- The CARES Act eliminated the 60% limit for cash donations to public charities in 2020.
Now, what are Things to remember about tax deductible donations?
Tax deductible donations must meet certain guidelines, or you won’t get the extra cash to accompany your good deed. Here’s how to make your tax year a little sweeter.
1. Donate to a qualifying organization
- Your charitable giving will qualify for a tax deduction only if it goes to a tax-exempt organization. Examples of qualified institutions include religious organizations, the Red Cross, nonprofit educational agencies, museums, volunteer fire companies and organizations that maintain public parks.
- You can verify an organization’s status with the IRS Exempt Organizations Select Check tool.
- Before you donate, ask the charity how much of your contribution will be tax-deductible.
2. Document your contributions
Keep track of your tax deductible donations, no matter the amount. If you made a monetary contribution, qualifying documentation includes a bank statement, a credit card statement and a receipt from the charity (including date, amount and name of the organization) or a cancelled check. If you made a contribution as an automatic deduction from your paycheck through your employer, keep copies of your W-2 or pay stubs showing the amount and date of your donation.
3. Don’t miss out on tax deductions for volunteering
IRS rules don’t let you deduct the value of your time or service, but expenses related to volunteering for a qualified organization can be tax deductible donations.
- Expenses must be directly and solely connected to the volunteer work you did that had not been previously reimbursed
- Your tax deductible donations can include mileage you drive to charitable events and volunteer opportunities, or mileage you used to bring items to a donation site.
- You can either deduct your actual expenses using receipts for gas and similar costs, or you can take the standard mileage deduction. For 2020, it’s 14 cents per mile when you use a vehicle in service of a charitable organization.
- Keep your receipts if you plan to deduct your actual expenses; you may need the if you're audited.
Make sure your taxes are filed correctly and go the safest way by hiring a tax professional who understands the tax code and who can truly make the best out of your taxes.
As a licensed attorney I always make sure all my clients needs are met, and I extend my offer to you. My services are fully online, secure, and all communication with me is protected by the attorney-client privilege. Get a consultation with me and let me help you understand and manage your taxes.