4 Things to Know about Charitable Donations

If you are considering making charitable donations, you need to understand a few things about them. There are many misunderstandings associated with charitable donations that could cause problems for you. Here are a few things to know about charitable donations.

1. Documentation

If you plan on deducting your charitable donations from your taxable income on your taxes, you need to make sure that you have some type of documentation. You cannot simply say that you donated a certain amount of money to a charity. You have to have a receipt or a canceled check to be able to prove that you made a donation. Many charities will provide you with a detailed receipt or statement after you make a donation to them. You do not necessarily have to provide copies of the statements to the IRS when you file your taxes. However, you need to file these receipts internally so that you can prove the donations if you are ever audited by the IRS.

2. No Fair Market Value for Car

Many charities accept cars as a form of donation. If you are considering giving your car to a charity, you need to understand that you will not be able to deduct the fair market value of your car on your taxes. In the past, this was the standard way to come up with the amount to deduct on your taxes. However, according to new tax laws, this is no longer the case. With car donations, you are going to be able to deduct the amount of money that the charity sells your car for. The IRS considers the sale price of the car to be the fair market value. This means that the charity will have to sell the car before they can give you the information to know how much to deduct on your taxes.

3. Out-of-Pocket Contributions

In addition to deducting direct donations to a charitable organization, you can also deduct any out-of-pocket expenses that you incur while helping a charity. If you have to come up with money out of your own pocket to perform service, you can deduct this amount of money on your taxes. For example, if you have to travel somewhere to serve a charity, you will be able to deduct the cost of your travel expenses and your meals while you are gone. Many people overlook this deduction, but it could be a valuable deduction when you file your taxes.

4. Appreciated Assets

Many individuals choose to donate appreciated assets to charities instead of giving them cash. If you give appreciated assets to a charity, it can actually provide you with two tax benefits. You will get to deduct the amount of money that you give from your taxable income just like any other type of donation. With this form of donation, you will also get to avoid paying capital gains taxes on the assets. For example, if you have stock that has appreciated in value over the years, you could give it to a charity and you will not have to pay any capital gains taxes on the stock.

blog comments powered by Disqus