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Why should you make a tax-deductible donation?

There are many advantages in making a donation to a charitable organization. First, you support causes that you deeply care about. Second, you feel good by doing so! Third, your donation may be tax-deductible.

This article provides some information about charitable giving. However, this is not intended to provide any legal advice. Our goal is to provide you with some understanding about the topic and hopefully inspire you to give while possibly deducting your donation in your tax-return. This article covers the following topics:

  • What is a charitable donation deduction?
  • How and what can I deduct on my income tax-return?
  • Can I donate to individuals and deduct my donation in my tax-return?
  • Filling out the tax donation form: everything you need to know.
  • I am a volunteer. Can I deduct the “value of my time and effort”?

How a charitable donation deduction works: giving to charity

Almost everything you give to charity can, in some way, be deducted through the IRS (Internal Revenue Service) tax return. That includes money, property and financial assets.

Charitable contributions to qualified organizations can be deducted if itemized on Form 1040, Schedule A. We highly recommend that you review the IRS guidelines on a regular basis as rules can change over time.

Deduction for cash donations

You will need written evidence of your cash donations, that is, confirmation from a charity organization, whether through a letter, bank statement, check or credit card statement in order to request a deduction. We will discuss this in more detail below.

Charitable donation deduction for other items

When it comes to household items such as toys, clothes, furniture, etc., it is necessary to establish a Fair Market Value (FMV), based on the date the product was donated, the price for which that property would sell for, and not the price paid. Among the factors to establish the values for tax deductible items, are:

  • The cost or sale price of the item;
  • Sales of similar products;
  • Expert opinions.

Deductions for charity organizations, not individuals

When you donate money to charity, you should check if the organization you are  eligible to receive tax-deductible contributions.

Donations directly given to individuals such as the homeless or low-income families may not be deducted on your tax-return. Although this may come as a surprise to you, we do not want to discourage you from helping individuals in need.  Just keep in mind that donations to individuals are not considered tax-deductible. On the other hand, you can help individuals in a number of ways – including giving to charitable organizations that assist them.

Filling out the tax donation form

To obtain a charitable donation deduction, you must complete Form 1040 and detail the deductions in Schedule A. When providing this information to your accountant, consider the following tips:

#1 Save all records of charitable donations

For you to be able to claim your charitable donation deduction on your tax donation form, it is very important that you have the receipts from all the times you gave to charity.

When you donate money to charity, the organization should give you a receipt or letter stating the donated amount, so you can list the tax-deductible items.

For donations based on text messages, a telephone bill is sufficient as a record if you have the name of the receiving organization, date of contribution and value delivered.

#2 How to make charitable donation deductions when you receive a gift from an Nonprofit Organization

If you receive any benefits for your charitable donations, you may only deduct the value that exceeds the FMV (Fair Market Value) of the benefit received. For example:

"A local public television station offers a CD player for a $1,000 donation to its annual fund drive. If the CD player’s value is $200, your deduction is limited to $800 — the difference between what you gave and what you got. You can claim the full charitable deduction only if you refuse the CD player."

#3 Completing other forms based on the donated value

For donations between US$ 250.00 and US$ 500.00

You should have a bank statement, payroll deduction record or a written acknowledgement from the qualified organization including the amount donated, property description and reward provided in exchange for the contribution, if any.

For donations between US$ 500.00 and US$ 5,000.00

You must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your tax return

For donations above US$ 5,000.00

You must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

Deduction for expenses related to volunteering

If you volunteer for charity organizations and use your professional expertise to help people, you cannot deduct this service on your tax donation form, even if you have a way of establishing a value for your service.

But it is possible to request a deduction of expenses related to the volunteer service such as transportation, gas, uniforms and other costs incurred while volunteering.

Once again, we strongly recommend that you refer to the IRS most recently released information before filing your tax return, as rules may change year over year.

This is the time to take advantage of your refund to help causes you care about and reap the benefits on next year's tax return.

The Legion of Good Will is recognized as a tax-exempt entity under section 501(c)(3) of the Internal Revenue Code. To make your tax-deductible donation for the 2018 year, click here.