Donating to charity could give you a nice tax break, but you have to follow the IRS’s rules. Here’s how to claim your tax deduction.
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Donating to charity is a great way to help worthwhile causes and earn a tax break in the process. But if you want to claim a charitable giving deduction this year, you need proof of your donation. You typically don’t have to submit this with your taxes. But if the IRS audits you and you don’t have it, the government will disallow the deduction.
What constitutes adequate proof depends on what kind of donation you made. We’ll review some of the most common types below.
Cash or items under $250
Donating cash or goods, like canned foods or old clothing, worth less than $250 only requires some sort of receipt. It could be a bank statement showing a payment to the charity, a credit card statement, or a paper receipt the charity gave you.
A few things worth noting here: First, all donations have to be to a qualifying tax-exempt organization in order to count. If not, it doesn’t matter how much you give. It won’t save you any money on your taxes.
Second, if you’re donating physical items, the value of your donation is the fair market value of the item. That’s not hard to figure out when you just bought some canned goods at the store and brought them to your local food bank. But it can be tougher for items like clothing you purchased years ago. It’s almost certainly not worth what you paid for it anymore.
Goodwill has a calculator you can use to estimate fair market value of common items. It also suggests taking 30% of the original sale price of the item as an alternative.
Cash of $250 or more or items worth $250 to $499
When donating larger amounts of cash or items with a fair market value of $250 to $499, you’ll need written acknowledgement from the charity. This could be a simple signed note from a charity representative.
It should include your name, the date, the name of the charity, and the amount of the cash donation or the estimated value of the noncash items. It should also state whether the charity provided you any goods or services in return for your donation. If it did, you must subtract the value of these goods or services from your charitable donation tax deduction.
Items worth $500 to $4,999
When donating non-cash items worth between $500 and $4,999, you must complete the steps above and fill out Section A of Form 8283 and submit this with your tax return. This form outlines the items donated and the estimated fair market value for each one.
Items worth $5,000 or more
Donating items with a fair market value of $5,000 or more requires you to fill out Section B of Form 8283 as well as completing all the steps above. You’ll also need to pay to obtain a qualified appraisal verifying the value of the donated items.
And if you’re super rich and plan to donate more than $500,000 worth of items, you should know you’ll also need to attach a copy of that appraisal to your tax return when you submit it.
Cars
Donating cars is pretty similar to donating cash or other goods. You typically use the fair market value of the vehicle. However, the rules are a little different if the charity you donate to sells the car and uses the proceeds to fund their mission.
In this case, your tax deduction is the lesser of the fair market value or the sale price, unless the vehicle sold for $500 or less. Then, your deduction is limited to the lesser of $500 or the vehicle’s fair market value.
Again, you’ll need receipts and probably an acknowledgement from the charity. And you’ll still have to fill out Form 8283 if the value of the car is $500 or more.
Mileage and other volunteering expenses
If you volunteer for a charity and travel as part of that work, you can deduct gas and other vehicle- or travel-related expenses not reimbursed by the charity. You’ll need receipts proving what you’ve spent and you should also keep a log of the miles driven while volunteering for the charity.
You can deduct your actual expenses if you want, including the cost of gas and oil. But you cannot deduct general maintenance costs, depreciation, registration fees, or the cost of tires and auto insurance. Alternatively, if you don’t want to bother with all that math, you can take a standard deduction of $0.14 per mile.
Necessary travel expenses, like a hotel stay, are also deductible only if you incur them during the course of your work for the charity and the charity doesn’t reimburse you for them.
Keep in mind that you’ll also have to itemize your deductions on your tax return if you hope to claim any charitable tax deductions this year. This isn’t always the best financial move. If you decide to opt for the standard tax deduction for your filing status instead, you don’t need to bother with the above steps because you won’t be claiming your charitable tax deduction.
This can all sound complicated, especially if you’re not well versed in tax law. If you have any questions, seek out a tax professional in your area who can advise you on your specific situation.
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