Feeling generous? Good. It's Giving Tuesday.
Giving Tuesday's goal is to fight the commercialization and consumerism of Christmas and other end-of-year holidays. Instead of buying more goods for family, friends or yourself, Giving Tuesday organizers urge gifts to nonprofits.
Such donations, the Internal Revenue Service reminds us, could produce a gift for you — a tax deduction — when you file your annual tax return next year.
As noted in a prior-year Giving Tuesday post, the deductibility of your donations depends on you following the tax code's rules regarding charitable gifts.
I'd love for you to read that earlier post at your leisure. For now, though, if you want to deduct any gift you make today, here are nine things the IRS and I (yes, I added a couple) say you should consider before donating this Giving Tuesday or any other day.
- Only Donations to Eligible Organizations are Tax-Deductible.
Eligible organizations are those that the IRS has approved for tax-exempt status. You can use the IRS' online Select Check tool to search the agency's database of eligible charitable organizations. Note that churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in this database.
- Itemize to Claim Charitable Donations.
If you claim the standard deduction and donate to your favorite charity, good for you. But not good for your taxes. Charitable deductions are not available to individuals who choose the standard deduction. Only taxpayers who itemize by filing Form 1040 Schedule A can claim deductions for charitable contributions. Tax preparation software usually alerts taxpayers to the tax savings options available if itemized deductions exceed the standard deduction. The IRS' website also can help you answer the question "Should I itemize?" So far in the Congressional tax reform debate, the itemized deduction for charitable gifts will remain, although some in the nonprofit world worry that the proposed tax code changes would make giving less appealing to taxpayers and would hurt charities.
- Get Proof of Monetary Donations.
A bank record or a written statement from the charity is needed to prove the amount and date of any donation of money. Money donations can include various forms apart from cash such as check, electronic funds transfer, credit card and payroll deduction. Taxpayers using payroll deductions should retain a pay stub, a Form W-2 wage statement or other proof showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
- Extra Work Required When Donating Property.
If you donate clothing and other household items, the amount you can claim on Schedule A generally is limited to the item's fair market value. You must determine that value yourself. Also, clothing and household items must be in good or better condition to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with their tax return. Donors also must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed. Special rules apply to cars, boats and other types of property donations.
- Note Any Benefit You Get for Your Gift.
Donors who get something in return for their donation may have to reduce their deduction. Benefits can include merchandise, meals, tickets to an event or other goods and services. A donation acknowledgment must state whether the organization provided any goods or services in exchange for the gift along with a description and estimated value of those goods or services.
- Older IRA Owners Have a Different Way to Give.
IRA owners age 70½ or older can transfer up to $100,000 per year to an eligible charity tax-free. The transfer can count as their required minimum distribution for the year. Funds must be transferred directly by the IRA trustee to the eligible charity. Note that older donors won't get a deduction for the transferred IRA money, but it will meet the RMD law and save the donor from owing tax on it.
- Volunteer Time Isn't Deductible:
If you give of your time, such as working at a food bank, instead of giving cash or goods, you deserve many thanks, but you won't get any from the IRS. You cannot claim the value of the hours spent at the nonprofit as a tax deduction. However, you might be able to deduct some out of pocket costs involved with your volunteer work, such as stationery and postage you bought and weren't reimbursed for when you helped your favorite charity send out fundraising letters. And don't forget to count your mileage in service to your favorite nonprofit. You can claim 14 cents per mile for the driving you do in furthering the cause.
- Don't Miss the Donation Deadline.
Contributions are deductible in the year made, so don't get so caught up in the holidays/New Year's celebrations that you forget to give. If your donation is charged to a credit card before the end of the year, that gift counts for the tax year in which it is charged even if you don't get or pay your credit card until the next year. The same timing consideration also applies to checks you write this year and clear the next year as long as they are mailed by year's end.
- Keep Good Records.
The tax cardinal rule that deductions demand documentation definitely applies to donations, too. But the type of tax records you need to keep depends on the amount and type of your donation. An additional reporting form is required for many property donations and an appraisal is often required for larger donations of property.
Again, these rules apply to all charitable gifts you give throughout the year, not just on this Giving Tuesday.
So if you don't get around to donating today, don't despair. You've still got more than a month to get your giving — and tax deduction — act together.