The Charitable Deduction
Being a tax advisor, it is important to spread information about benefits that most people can use.
So, this prompts the fundamental question - what is a charitable donation?
Well first, you need a qualified organization. This means the IRS has to recognize the charity under IRS Sect 501(c)(3). These organizations are generally listed on https://www.irs.gov/charities-non-profits/search-for-tax-exempt-organizations, and not all organizations qualify. For example, we see a lot of donations through gofundme.com, some of which are qualified and some of which are not. Usually, if the charitable organization provides their U.S. tax identification number, you should be able claim the deduction.
Another important item to note is that the IRS doesn’t allow deductions for personal expenses or the value of your time. However, you can claim charitable mileage at 14 cents a mile in 2021.
You can also sometimes get a deduction for contributions to Canadian, Mexican, and Israeli charities by filing Form 8833 for U.S. tax treaty benefits. These deductions may, however, require taxable income from the other country.
There are different rules for cash contributions and property contributions. Cash contributions are currently worth 100 percent of face value, for instance, and should only require a receipt from the qualified organization. Property, on the other hand, may require differing degrees of proof the show the value of the donation. Usually, for a trip to Good Will, the Salvation Army, or your church, synagogue, mosque, or temple, you will use what is called ‘thrift store value’. In practice, this standard can struggle with objectivity, but it really just means the value of what you give is based on what it could be sold for at a thrift shop.
What about recordkeeping for property donations? A receipt will generally suffice if the gift is under $500, but if you give over $500 you need to explain how the property was acquired, more details about the type of property given, and further identifying details about the charity. If there is a lot of property being donated that is difficult to value, sometimes pictures should be taken for your records. This information (except the pictures) is typically provided by filing Form 8283. And if you donate property valued over $5,000, expect to provide in a formal appraisal.
The IRS deadline for making donations is December 31, so don’t lose your opportunity to do some tax-free good. Also remember to check your state rules for charitable contributions. States like Arizona, which has a donation deadline of April 15 following year-end for a tax credit (dollar-for-dollar reduction of your tax due), rather than deduction, can actually be more generous than your federal benefit!