Donating to charity is considered a moral, spiritual, and ethical responsibility in many cultures across the globe. Given the widening socio-economic gaps in society, charitable donations have become more crucial than ever before as they have a positive impact on both the recipient and the giver.
Charitable organizations help address pressing social, economic, political, environmental, and other issues impacting specific communities and/or the society at large. They help in bringing about systemic changes and enable communities to ensure their overall well-being. By giving to charity, you enable the driving forward of worthy causes such as education, sustainability, health, hygiene & sanitation, research, cultural preservation, and so on.
Regardless of whether you choose to give to non-profit organizations, schools, individuals, or communities, your charitable donations help make a real difference and amplify kindness in the world. Charitable giving has a positive impact on the donor too. Several studies suggest giving to charity is linked to improved psychological well-being and increased life satisfaction of the donor.
Not just that, charitable donations have great tax benefits. Keep reading to find out what they are specifically in the US.
Tax Benefits of Charitable Donations in the US
The IRS (Internal Revenue Services) offers incentives to those giving to charity in the US. The most important tax benefit is that you can deduct your charitable donations, in cash and kind, made to qualified organizations from your taxable income. Whether you are an individual or an organization, tax deductible donations help you to reduce your tax bill significantly.
Depending on whether you are an individual or an organization (and the nature of the organization), the way you can claim tax deductions on your charitable contributions will differ.
Remember you can claim tax deductions for not just cash donations, but donations made in kind, time, and service too. In-kind donations to charities can take the form of property, household goods, etc. These are valued at their estimated value at the time of donation.
If you are volunteering or providing a free service to the non-profit organization, you cannot claim a deduction for the value of your time spent or the service rendered. However, you can claim a tax deduction on unreimbursed expenses made during volunteering as a charitable gift. For instance, travel expenses, mileage allowance, etc.
The Criteria for Claiming Deductions on Charitable Donations
How Much of Your Charitable Donations Can You Deduct? If you opt for itemized deductions, you may even gain a 100% tax deduction on charitable donations that qualify under the new law. However, remember that your total tax-deductible donations cannot exceed 60% of your adjusted gross income. In some cases, this limit may be reduced to 50%, 30% or 20%.
If you make larger donations to charity that exceed the upper limit on deductions, the exceeding amount is carried onto the next year. You will gain tax benefits on that part of the charitable donation only in the next taxation year. There is a five-year limit on carrying forward tax-deductible donations.
Is it a 501(c)(3) Non-Profit Organization? Not every charitable donation is eligible for tax deduction. The charity you are donating to must be tax-exempt organization; it must be registered under the Section 501(c)(3) of the Internal Revenue Code as a 501(c)(3) organization. So, check for the eligibility of the organization using the Tax Exempt Organization Search Tool of the IRS.
Do You Have Proof on your Donations? To gain tax benefits on your charitable donations, you must have proof of the contributions made.
- For cash contributions less than USD 250, a bank or credit card statement or a written receipt from the charity would suffice.
- For in-kind donations less than USD 250, you should have a written receipt from the organization along with the list of donated items.
- For cash contributions over USD 250, you must have a written letter of acknowledgement from the organization. Without this, you will not be able to claim your tax deduction.
- For in-kind donations between USD 250-500, you must have a written letter of acknowledgement from the charity with the details of your charitable donations.
- For in-kind donations between USD 500-5000, you must fill out IRS Form 8283 along with the letter of acknowledgement.
- For in-kind donations over USD 5000, you will need to submit the letter of acknowledgement, form 8283 and an official appraisal of the donated goods.
- For charitable gifts, you need to obtain an official written confirmation from the charity organization for the volunteer services offered.
Whether you are donating to charity as an altruistic gesture, a social responsibility, or for tax benefits, the act of giving does help create a positive change in the world. With the rise of online crowdfunding platforms like TALGiving, it is simple, hassle-free, and secure to give to charity.
Touch-A-Life Foundation is registered 501(c)(3) non-profit organization and its crowdfunding platform, TALGiving, leverages technology to bridge the gap between those willing to give and those in need. We instantly generate receipt for you for every charitable donation made using the TALGiving platform. You can use these to claim your tax benefits. Our platform offers a number of features to ensure you don’t lose track of your donations. This way, you reduce your tax bill while amplifying kindness in the world.
