It is in the nature of Christians to give money to charity and help those who are less fortunate than us. Fortunately the government offers tax deduction benefits to those donating to charity – this can reduce your taxable income and help lower your tax bill. and we shall look at the rules behind this in today’s article.
What are the Laws Surrounding Tax Deduction Benefits for Donations?
Tax deduction benefits do have some rules surrounding them that you must abide by in order to gain the benefits that you want.
Firstly you must itemize your tax deductions if you want to claim anything back from a donation you have made to a charity. There are also a range of other criteria that you must meet.
Firstly you must actually donate either cash or property to an organization – not pledge or promise to do so. Until the money or property has been handed over you cannot claim the tax back on it.
To be able to claim tax deduction benefits you must also ensure that your donation is made to a charity that has been registered as tax-exempt. If a charity has received this status they will let you know at the time of making a donation. There are some exclusions to this rule including donations to churches and Christian organizations.
Another key to ensuring you can claim tax deduction benefits on charitable donations is keeping perfect records – which we shall look at in more detail below.
Keeping Records of your Charity Donations
If you want to claim tax deduction benefits it is vital that you maintain excellent records of your donations. The Pension Protection Act states that you must keep written documentation of all cash donations and for donations over $250 in value you must have supporting documents within your records.
In your records you must also have the name of the organization, the date you made the contribution and how much you donated. On top of this you need to keep any cancelled checks, appraisals for donated property and any written correspondence and documentation from charities you have donated to.
If you have donated property there are even stricter rules on tax deduction benefits and record keeping. You must assess the fair market value of the property you have donated and fill out an IRS Form 8283 if your donated property exceeds $500.
If you have donated a car, truck, airplane, boat or any other type of vehicle to a charitable organization then your records must include written acknowledgement of the donation from the receiving charity if it is worth upwards of $500.
Non-cash contributions totally over $5,000 must have an accompanying written appraisal of the items’ fair market property value to attach to your tax deduction form.
Are there limits on the Tax Deduction Benefits?
There are limits to the amount that your charitable donations can be tax deducted. On cash donations you can usually deduct up to 50 percent of the adjusted gross income; on property donations there is a 30 percent upper limit of your adjusted gross income; and for contributions of appreciated capital gains assets there is a 20 percent tax deduction limit of your adjusted gross income.
If your charity donations exceed these limits they can actually be passed over into the next tax year. However it can only be carried over for a maximum of five years.
What Donations are not Tax Deductible?
Not all charitable donations are tax deductible, so if the tax deduction is important to you then you should make sure that your chosen charity is not in the exclusion list.
Contributions to individual people, political parties, political campaigns or foreign governments are not tax deductible. In a similar way, contributions to for-profit schools and hospitals or the value of your time for services rendered for a non-profit organization are also not tax deductible.
As we mentioned before, a charity must be registered as tax-deductible to be eligible for tax deduction benefits.