This season, consider giving the gift of a charity. Many consumers give charitable donations (and get tax deductions as an added bonus) during this time of year.
If you're considering making a donation, brush up on tax law first. This way, you can ensure you get the most out of your contributions. So, what are some issues you should be aware of?
Donations can allow you to take a charitable contribution deduction if you choose to itemize. Typically, these contributions are deductible for the fair market value of the item donated. If you donate a physical good, such as a couch or a television, you can deduct the market value of that item.
Tax deductions mean that charitable contributions are often "cheaper" to make. For example: if you donate $100 to a charity but you are in the 33% tax bracket, you can deduct that $100 from your income. Ordinarily, you would be taxed for that $100. So you are "saving" 33% of your donation, meaning your $100 donation will actually only cost you $67.
Certain forms may need to be filled out depending on your donation. One example is if you're making a non-cash contribution over $500 or contributions of more than $5,000 you may need to fill out IRS Form 8283.
Donations don't necessarily need to go to charities. You can deduct donations made to churches, non-profit entities, public parks, and other groups that qualify. Donations to certain organizations are not eligible, including individuals, political groups or candidates, and professional groups. Make sure you check to see if the organization you are giving to is eligible.
Remember to keep your receipts and records. The IRS requires that you keep some sort of record of your donation. Receipts, bank records, payroll deduction records, or any written communication from the charity may suffice.
The fact that charitable donations come with tax deductions is nice bonus. Just make sure your donations don't run afoul of tax laws.