Thinking that a donation will always be tax deductible is one of the biggest wrong assumptions made by most people. This assumption arises from the fact that most people do not understand how charity and taxes are related. It is a complicated process but can be managed with some basic knowledge and an understanding of tax in your state.
Here are some ways in which you can make your charitable donations tax deductible.
- Itemize the donation: In order to claim a donation on your tax return, you should itemize your deduction on the Schedule A of the Federal Form 1040.
- Choose your charity carefully: While donating to a charity, check whether the donations to it are tax-deductible. Most charities inform donors that if you donate to them, you will get a tax deduction. If a charity does not mention this, talk to the responsible person in the organization. Ask for the determination letter provided by the IRS. You can easily find this letter on the charity’s website. If you have any queries, you can verify by calling on the IRS toll-free number. Remember that the government considers churches, temples, mosques, and synagogues as de facto charitable organizations, so these do not have to be on any list.
- Donations to individuals do not count: Charity to an individual might be well deserving but the government does not recognize these as charity and hence, there are no tax deductions for individual donations. Individual donations include handouts to homeless people, feeding a certain set of people on daily basis, collecting money in the local community or the office to be donated to a family going through a tough time. According to the government, if individuals really want to do something for the society and want some tax deductions in exchange, they should donate through established organizations like Red Cross.
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- Ask for a receipt: Donation receipts are a must when claiming a deduction for a donation. So, whenever you donate, ask for a receipt from the organization you are donating to. Ask for a receipt for all types of transactions including online and cash donations. This receipt must clearly show the name of the organization, date on which the donation was made, and the donated amount.
- Be aware of payroll deductions: Sometimes employers participate in a charitable program and they transfer the tax benefit to the employees who contribute to a charity. If you can make a contribution through payroll deduction, you can save on the tax through your employer. Always remember to ask for form w-2 from the employer that shows the total amount that is withheld from your salary as a charitable donation, along with a pledge card.
- Ask for the value of the donor incentive: If you donate something to a charity and you get something in exchange, you can get a tax deduction on the amount after deducting the price of the gift from the charity amount. For example, if you donate $100 to a charity and get a $4 t-shirt in exchange, you can get a tax deduction on $96 only.
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