From Donations to Deductions: Tracking Your Charitable Donations
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With the advent of social giving online, charitable donations such as #GivingTuesday and campaigns in the wake of disasters provide easy ways to support causes close to our hearts. Whether you give at the end of year or throughout, tracking your charitable donations can provide rewards at tax time.
Use Itemized Deductions for Large Donations
The IRS offers two ways to deduct expenses to determine your taxable income. The standard deduction is the method most taxpayers use and represents a fixed dollar amount for your filing status. You can choose the standard deduction even if it's greater than your actual expenses.
Itemizing deductions use the actual amounts you spend on certain expenses, including:
- State and local income taxes
- Sales taxes
- Property and real estate taxes
- Unreimbursed medical and business expenses
- Charitable donations
You can choose the method that allows you to pay the least amount of tax. To itemize deductions, however, you must track expenses and maintain accurate records for all deductible expenses, including charitable donations.
Donate Only to Qualified Charities
Once you make the jump to itemizing deductions, keep in mind that the IRS has firm rules regarding charitable donations. You can deduct a charitable donation only if you give to a non-profit organization recognized by the IRS. Be sure to use current information, as the IRS may not allow donations based on out-of-date lists.
The Value of Charitable Donations
Keep accurate records of charitable donations that include the amount and date of the transaction as well as the name of the recipient charity. This could be a bank record or other types of receipts.
If the amount of your donation to a particular charity is over $250, the organization must provide you with a letter stating whether you received goods or services in return. If you won a $250 dinner at a silent auction for which you bid $100, you received goods and services in excess of the donation, so it's not tax deductible. On the other hand, if you bid $500 for the same dinner, the excess $250 qualifies as a charitable donation.
Gifts of property can be deducted for their cash value at the time of donation. If your annual gifts exceed $500, you must complete Form 8283 Noncash Charitable Contributions and include it with your return.
Track Donations and Keep Accurate Records
Taking advantage of itemized deductions, including charitable contributions, makes for greater record-keeping responsibility. Using personal finance software, such as Quicken, allows you to categorize all deductible transactions as you make them, relieving the year-end chore of sorting through paper receipts.
The IRS imposes upper limits on the amount of deductions you can make annually, usually limited to 50 percent of your adjusted gross income. Some donations, such as cars, boats or airplanes, have special rules and exceptions, for example, donating your car to a person in need.