How to Make Charitable Contributions That Count (and are Tax Deductible)

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Updated on Thursday, December 10, 2015

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You may have noticed December is a very popular time of year for making charitable donations. The reason is twofold. First, this time of year (the end of the year) is when many major holidays take place, and the season is often known as a time of giving. For this reason, people are more generous and often looking to make more donations.

The second reason that this time of year promotes more giving is that people are tax planning. Charitable donations are a great way to pay less in taxes because these contributions are tax deductible. You may not have to file until April 15, but December 31 is the deadline to make a charitable contribution that counts as a deduction the current tax year.

How Taxes Influence Charitable Donations

Taxes are based on the calendar year; so financial planners and accountants can advise their clients as to the potential tax savings for the year through making more charitable donations in the year.

For example, assume Amy and Bob go to their accountant for a tax planning meeting. Their accountant shows Amy and Bob a tax projection that puts them in the 33% tax bracket. Because Amy and Bob use itemized deductions (not the standard deduction), their accountant tells Amy and Bob that for every additional dollar they donate through a charitable contribution, they will save 33% in taxes because charitable contributions are tax deductible. If Amy and Bob decide to make an additional $10,000 charitable contribution by the end of 2015, then they will save $3,300 in taxes.

What Makes a Charitable Contribution a Tax Deduction

Charitable contributions are only deductible if you itemize your tax deductions. If you take a standard deduction on your tax return, then making a charitable donation will not affect your taxes.

For a charitable donation to be deductible, it must be made to a qualifying organization. You can never deduct a charitable gift made to an individual. For an organization to qualify, the IRS must consider it as a tax-exempt organization. Often, referred to as

“501(c)(3)” organizations because this is the section of the IRS Code that the definition of qualifying organizations is defined.

Before making a charitable donation, you should ask the charity about its tax status and whether it is a tax-exempt organization.

Most public charities are known as “50% charities,” which means that you can deduct up to 50% of your adjusted gross income through donations made to the charity (but not more). This is usually not an issue for most people, but it is something to be aware of.

Be sure to also keep confirmation of your charitable contribution on file. Many charities will automatically provide you with a letter confirming your tax-deductible donation – but if you don’t receive such proof it’s important to secure it before taking the deduction on your taxes. You want to be able to prove you made the donation in case you ever get audited. There are also particular forms you may need to fill out if you are claiming noncash contributions in excess of $500 like clothing or property.

Learn more about charitable deductions on the IRS website.

How to Determine Where to Donate

If you plan on making a charitable donation, you have many options from which to choose. Most people pick charities that have a personal connection to them, but if you don’t have a charity in mind, there are a couple of places you can look to get some ideas.

Guidestar is a website that provides information about IRS-registered non-profit organizations. Guidestar provides information regarding each non-profit’s mission, legitimacy, impact, reputation, finances, programs, transparency, governance, etc. Guidestar’s mission is to provide information so that you can make the best decision about which charity to give to.

Charity Navigator is another website to use if you’re looking for charities to give to. Charity Navigator calls itself the “nation’s largest and most-utilized evaluator of charities”. Charity Navigator uses a system to evaluate each charity’s Financial Health and their Accountability & Transparency and then gives the charity a rating. Charity Navigator is not affiliated with any charities and does not receive funding from them either – it prides itself on remaining objective to help the consumer.

If you are interested in making a charitable donation, using either Guidestar or Charity Navigator is a great place to start to know where to donate.

Top 5 Charitable Gift Recipients

People tend to donate most to the bigger charities that are very well known. For example, Forbes has a list of the top 50 charities that people donate to from this time last year. Topping the list were the following 5 charities:

  1. United Way
  2. Salvation Army
  3. Feeding America
  4. Task Force for Global Health
  5. American National Red Cross

These are all charities that I have heard of, and it’s likely that you have heard of, too. Using sites like Guidestar and Charity Navigator, you can determine if these big time charities are what you are looking for, or whether you would rather donate to a smaller charity.

For more information about the top charities that people donate to, see the full Forbes article here.

It’s Okay to Benefit from Giving

The holidays promote a season of giving. Charities are more eager than ever to receive gifts, and people are more generous than other times throughout the year.

This generosity may also have tax benefits for big donors, too. If you itemize your tax deductions on your tax return, then you have the opportunity to benefit from charitable donations because they are tax deductible. This only applies for qualifying charities, however, and it does not apply to gifts made to individuals. Do your research to determine where to give before you commit to donating any money. You want to make sure that you maximize your tax deductions and give to a charity that you truly believe in.

The end of the year is a time for giving, and you can benefit by shaving off your tax bill by participating.

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