Give more charity, pay less taxes

US Mint

Americans rank first in the world when it comes to charitable giving, according to a recent article in the Wall Street Journal.

Make sure that you take advantage of the tax benefits that come with charitable giving.  Understanding the rules can help increase your tax deductions and reduce your overall taxes.  Here are the basic requirements:

  1. Must be given during the year.   Donations must be given by the end of the calendar year, December 31, in order to deduct charity on the tax return that you file this Spring.  A charitable contribution given on or after January 1, 2012 can’t be deducted until next year.
  2. Must be to a real charity.  The IRS permits deducting charity given to any church or synagogue or other 501(c)3 tax-exempt entity.  When you give charity, make sure that the recipient is IRS-compliant.  Charity to unrecognized recipients (such as gifts made directly to homeless people) are not tax-deductible.
  3. Get a receipt.  Charities are required to give you a receipt for any gift over $250.  The receipt should say something to the effect that you received “no tangible benefit” from your gift.
  4. Must be a real gift.  Payments to nonprofit organizations for services received (such as purchases from the church gift shop or religious school tuition) are not tax-deductible.
  5. Must itemize your deductions on Schedule A.  If you do not itemize your deductions using Schedule A (you use the “standard deduction”) then your charitable gifts will not reduce your Federal taxes.

Church plate gifts, even of cash, are tax deductible. Ask your church or synagogue office for a receipt.  

Furthermore, noncash gifts (such as old clothing) are tax deductible.  If you donate old clothes or furniture to the Salvation Army or Goodwill, complete the receipt and get it signed by the charity. More on this tomorrow.

Tax Trivia: You cannot deduct contributions exceeding 50% of your Adjusted Gross Income.  Gifts to certain types of organizations (fraternal societies, nonprofit cemeteries, and others) are limited to 30%.  Certain types of property gifts are limited to 20% of AGI.  Undeducted gifts can be carried forward to future years and deducted then.

For more information about the rules for charitable deductions click here.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

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