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Charitable Deductions

Charitable Deductions

Americans gave $520.23 billion in charity in 2015, equivalent to 3% of the U.S. GDP (gross domestic product). The majority of that charity, $418 billion, came from the individuals – not a surprising figure since 86% of the households donate to charity.

Making a charitable donation is not just a great opportunity to make a difference; it’s also an incredible way to decrease your tax burden for the entire year. The tax benefit is a convincing reason for making giant charitable deductions: most of the high-net-worth charity donors said they would reduce their charitable amount if they will not get any corresponding tax deduction.

Ensure you get a tax deduction for that charitable  donation

It is said, “Good deeds bring their own awards”. Despite that, there's nothing wrong with expecting tax deductions for your charitable donation. Tax deduction makes their spirit even more generous, while improving the overall deal. Not surprisingly, December is popular time for giving since it’s a great a time for people to wrap up their loose ends.

A tax deduction for charitable giving isn’t certain just because you’re being kind. Understanding what you can and can't claim as charitable contributions helps to maximize your potential tax savings offered by the charitable tax deduction.
 Following are a few tips to help making your donation count:

  1. Itemize. If you want to claim a charitable deduction on your tax return, it is important to itemize your deductions. You should report your itemized deductions on Schedule A on your federal form using the lines 16-19: 
  2. Make  careful choices. Only donations to the approved charitable organization are liable for deductions. If you are not sure whether the charitable organization is approved, you can ask them for the letter from the IRS (many charitable organizations actually post their verification letters on their online portals). If this is not possible, you can also search online using the IRS Exempt Organizations Select Check. Always remember that churches, temples, synagogues and mosques are considered as the de  facto charitable organizations and are entitled to obtain deductible donations they’re not listed there (though there are some exceptions, so make sure to confirm and then make decision). You can also get to know more about the tax exempt status of the charitable organization– as well as mission statements, review financials and more – by looking at the third party evaluator websites like Charity Navigator and more.
  3. Take  a receipt. Cash deductions, despite of the amount, must be authenticated by a bank record (such as a credit card receipt or canceled check, clearly interpreted with the name of the charitable organization) or in writing from the relevant trust. The writing must include the date, the amount and the organization that received the donation. You don’t need to submit the writing with your return however you should be prepared to show it at review. This is a moderately new obligation: the rules changed few years back to facilitate the written evidence for all financial donations, including cash.
  4. Dont  ignore payroll deductions. More and more number of workers rely on charitable giving opportunities provided by their employer. If you are making a contribution by the payroll deduction, record keeping needs under the Pension Protection Act of 2006 want you to keep a pay stub, form W-2 or other document provided by your employer that shows the total amount withdrawn as a charitable donation along with the guarantee card that reveals the name of the charitable organization. For federal workers, a guarantee card with the name of a Combined Federal Campaign will cater to these requirements.
  5. Focus  on the value of incentives. A charitable donation is deductible just to the extent that the contribution exceeds the cost of any services or goods received in exchange. If you are making a donation and getting something in exchange – anything from dinner to a coffee mug – you can subtract the value of the item received from the cost of your donation. If you are not sure about the price of a service or an item received after a donation, simply ask the concerned person. Most charities will do the calculations for you and create the total value of your donation on their receipt or thank you letter.
  6. Consider  donating valued assets. Donating valued assets, such as stocks, can result in great profits. Not just can you deduct the exact market value of the possessions; you can also avoid paying the capital gains tax. Usually, appreciated property is subject to the capital gains tax at its deposit. There is an exemption for the donations to charitable organizations: you get rid from paying the capital gains tax overall.
  7. You cant  deduct the value of your time. The IRS does not permit a charitable deduction for the volunteering of your services. The good thing is that out of pocket expenses relating to the volunteering so long as they are not reimbursed; directly connected with the services; operating expense you had just because of the services you offered; and not living, personal or family expenses. Out of pocket charitable cost which might be liable for deductions include the total cost of transportation (including tolls and parking fees); unreimbursed clothing or other related uniforms worn as part of your charitable service; travel expenses when you are away from your home executing deeds for a charitable organization; and supplies used in the presentation of your services. As with the other donations, keeping good records for documentation is the key.
  8. Document  the Worth of your contribution.  When it comes to charitable giving, good records are always critical. You must be able to authenticate the worth of your donation. You can usually take a deduction for the reasonable market value of the possessions, or what the item would vend for in its present condition, but you’ll want to be able to establish an appropriate value. If self-documenting the donation because it’s less than $500, be specific, noting the description and condition of the items. If you donate assets worth more than $5,000, you must get a written appraisal of the fair market value of assets.
  9. Restrictions  may apply. Many taxpayers don’t even know that there are limits on the charitable donations although they do exist. If you are donating more than 20% of your accustomed gross income, it’s high time for you to pay attention to the restrictions. The specific restrictions can be fairly difficult – with many exceptions – but here are some swift rules of the thumb: you can deduct valued capital gains assets up to 20 percent of the AGI; you can deduct non-cash assets worth up to 30 percent of AGI; and you can deduct the cash contributions up to 50% of AGI. If you go beyond those restrictions, you can take the deduction onward for the next five years.
  10. Focus  on to the calendar. Donations are deductible in the year they are made. To make it calculated during the tax year, contributions must be made by the 31st December every year. That doesn’t really mean cash out of your financial credit. Credit card charges – albeit they’re not paid off before the end of the year – are liable for deduction so long as the charge is detained by the end of year. Similarly, checks which are mailed and written by the end of the year will be liable for deductions for this year even if you haven’t cashed them for the year.


Contact Bhatia and Company today by clicking the link below to get more information about our tax related services.  If you’re in or around the Santa Clara region, you can schedule an appointment to come into our offices. 

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