Should you claim charitable donations on your tax return? The answer is maybe! This blog helps you decide whether filing deductions is worth it based on what types of donations you make, who you make donations to, and more.
Are filing deductions worth it?
First and foremost, if you’re deciding whether or not to claim your charitable contributions on your taxes, you need to decide whether creating itemized deductions versus taking the standard deduction is worth it. When you choose to submit an itemized tax deduction, you must keep careful and detailed records throughout the year, this includes non-charitable deductions as well. This could be worth it if you’re planning to donate large lump sums or have other deductions you have to itemize anyway.
For taxes filed in April 2021, the standard deduction for single taxpayers is $12,400 and $24,800 for married taxpayers who chose to file together. Evaluate whether your deductions will exceed this number and if the potential cost of hiring an accountant still offsets the standard deduction. Don’t forget, starting in 2020, you can now claim $300 worth of charitable contributions without itemizing your full deductions. Be sure to take advantage of this one!
Is there a max on deductions you can claim?
Next, let’s talk about how much you can actually claim in regards to charitable deductions. Under the CARES Act, also known as the Coronavirus Aid, Relief and Economic Security Act, you can deduct up to 100% of your adjusted gross income when you make a donation to a qualifying charity.
How do I know if the charity qualifies?
If you’ve already donated to a charity during the past tax season, you’ll want to go back and check the charity’s eligibility for tax deductions before you bother with itemizing your contributions. For future donations, this information is important because it could help determine where your charitable contributions are going. The main thing to remember is the charity needs to be a private foundation or a 501(c)(3) public charity. If you’re still unsure, verify your charity of choice with the IRS Tax Exempt Organization Search. If your organization is not listed, there is a good chance it might be a non-profit that isn’t eligible for tax deductible donations due to public political affiliations.
Once you’ve donated, don’t forget to collect a tax receipt from the charity. This applies to both monetary and non-monetary contributions, such as donating supplies. If you need help with your charitable tax deductions and how to file, reach out to one of our IOOGO Pro Tax preparers. We also offer DIY options if you’re an expert bookkeeper!
What counts as a charitable deduction?
Now you have an approved list of charities and you’re ready to contribute. This is where you can get creative with your deductions.
Aside from monetary donations, a number of other deductions can also be claimed against your taxes. Clothing and household items is a common one, especially during 2020 when the world had the most epic spring cleaning session to date. Donation stations were overflowing with clothing and household donations at the beginning of the pandemic. The catch is, you can only claim the price of the item that would sell in a thrift store, not the original value of the item. If you’re making a large donation, especially on items like furniture or designer goods, it could still be worthwhile to document. On the other hand, if you want to donate a car, you’ll get far less of a benefit than if you were to just sell it or trade it into a dealer.
Other expenses, like ones associated with volunteer work can also apply to your deductions. If you are purchasing supplies for volunteering and are not reimbursed for them, you can claim these receipts as deductions. If you’re traveling to and from volunteer sites, you may also qualify for a mileage based tax deduction. You can use an app to help you track your mileage and the actual deduction amount can be calculated using the standard mileage deduction rate chart. The most important thing to remember is to keep your records!
How can I file my charitable deductions?
Ready to file those deductions? Fill out Schedule A of IRS Form 1040 or 1040-SR. Monetary donations can be deducted up to 100% of your adjusted gross income (AGI), property donations can only equal 30% of your AGI. If you do exceed these amounts, they can be carried over and applied to the following tax year, maxing out at five tax years in total.
Now that you know what types of charitable donations you can gather, where you can donate to and how to file, think about whether or not you want to submit itemized deductions on your next tax return. If you need tax planning or preparation advice, the team is IOOGO Tax is always here for you.