Tax benefits of charitable donations
Posted On: 7-7-2015 | Posted By: Rosemary Jacobson, CPA, EA
Whether you are donating cash, stock, used goods or your time, charitable donations provide a benefit to the recipient organizations and the community. As a bonus, they can help reduce your taxable income. We’ve summarized some basic information you need to know when making charitable donations.
Donations to a qualified charitable organization are deductible against income but cannot exceed 50 percent of adjusted gross income. This is true for both cash and non-cash donations.
The value of a cash donation is obvious, but non-cash donations can be a little harder to figure out. To determine the value of used household goods such as housewares, linens, clothing, or similar items, a standard method used is thrift shop values. Keep in mind that the items must be in good used condition to qualify for a deduction. Many charitable organizations have guidelines for determining the thrift shop value of household items. If total non-cash donations exceed $500, the name and address of the donee organization must be included with the tax return. If non-cash donations exceed $5,000 an appraisal is required.
There is also a deduction available for charitable miles driven. If you drive to a location to do volunteer work, keep track of the miles – they can be deducted at a rate of 14 cents per mile. If you’re traveling away from home to volunteer, some travel expenses may also be deductible, such as transportation, meals and lodging while you are away from home.
Donating appreciated capital gain property, such as stocks, can also be an effective tax strategy. The increase in value of the asset is not reported as income but the full fair market value is allowed for the deduction.
For all charitable contributions, it is very important to keep good records. Receipts and acknowledgements from the charity, cancelled checks and appraisals should all be retained to substantiate the donation.
Finally, donations to certain organizations give you the added benefit of a tax credit on your Missouri tax return. For many of these credits, you are allowed both the deduction on your federal return and the credit on the state return, which can provide a substantial tax savings.
Please feel free to contact your WK advisor if you have any questions about how to maximize your tax savings through charitable giving. It’s a win-win situation!