At the end of each year, many charities send out mailers reminding people that their charitable donations may be tax deductible. If you were one of the millions of individuals who made a charitable contribution in the past year, you may be eligible for a significant tax break. However, like most Americans, your motivations for donating to charity were probably not strictly – or even primarily – financial.
In 2015 alone, Americans donated $373.25 billion[i]. A study showed that in 2000, 90 percent of American households donated on average $1,623 to nonprofits[ii]. So what exactly is leading us to be so giving?
The Tax Benefits
Each year the IRS allows US citizens to itemize charitable contributions equal to 20 to 50 percent of their adjusted gross income, with some exceptions.[iii] That number is determined by the type of charitable organization that they donate to and how the IRS classifies each charity.
Basic Rules for Claiming Your Tax Deduction
- Donation Is Cash or Property during the Previous Year: If you pledged at the end of the year to donate, but your donation didn’t come out of your checking or savings account until after January 1, it is not tax deductible for last year.
- Qualified Tax-Exempt Organization: Ask your charity if it qualifies for a 501(c)(3) tax exemption. This is not required for religious organizations.
- Keeping Your Receipts: If you donated to a charity with the intention to file for itemized deductions, you hopefully kept your receipts. Any donation larger than $250 requires that you have a receipt. [iii]
As you go back through your records to determine whether you can write off a few donations, make sure your itemized deduction qualifies. If you donated to political campaigns, paid dues to professional associations or a union, gave money to a for-profit school, or volunteered time to a non-profit organization, you are not eligible for a tax break. [iv]
Not sure where your donations fit in? Try this IRS search tool to help you find your preferred charity and its tax deductibility status.
Be prepared for the fact that your charitable tax deductions may be limited if your adjusted gross income is over:
$154,950 if married filing separately
$258,250 if filing single
$284,050 if head of household
$309,900 if married and filing jointly.[v]
Talk to your tax professional to make sure you are able to get the most from your donations to charity.
Tax deductions aren’t the only reason that Americans are so giving. In fact, taxes aren’t even near the top of the list of reasons that we donate to charities. A study from the U.S. Trust and Indiana University Lilly Family School of Philanthropy showed that 73.5 percent of people were motivated to give because they wanted make a difference, with personal satisfaction coming in second at 73.1 percent.
Receiving a tax break fell much further down the list, with only 34.4 percent of those surveyed saying it was a driving factor behind their charitable giving.[vi]
Whatever your motivation for donating to charity, don’t wait until December to make an impact. Most charitable organizations receive a quarter to half of their year’s total contributions from October to December.[vii] Spread your joy for giving all year long!
[I]“See the Numbers’, Giving USA https://givingusa.org/see-the-numbers-giving-usa-2016-infographic - June 23, 2016
[ii]“Why Do People Give?” Pittsburgh University. http://www.pitt.edu/~vester/whydopeoplegive.pdf
[iii]“Get a Tax Deduction for Charitable Giving” Bankrate. http://www.bankrate.com/finance/taxes/get-a-tax-deduction-for-charitable-giving-1.aspx - Dec. 23, 2015
[iv]“Tax Deduction for Charity Donations” TheBalance.com. https://www.thebalance.com/tax-deduction-for-charity-donations-3192983 - January 23, 2016
[v]“Publication 526” IRS. https://www.irs.gov/publications/p526/ar02.html#en_US_2015_publink1000229802
[vi]“The Surprising Relationship Between Taxes and Charitable Giving” Wall Street Journal. http://www.wsj.com/articles/the-surprising-relationship-between-taxes-and-charitable-giving-1450062191 - December 12, 2015
[vii“Charitable Giving in America: Some Facts and Figures” National Center for Charitable Statistics. http://nccs.urban.org/data-statistics/charitable-giving-america-some-facts-and-figuresfigures
"Charitable Giving - More Than Just a Tax Break"
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