The holiday season is a great time to give presents to loved ones, but also to charities that help others.
Donations of money or goods to a charity by the end of the year can also help you on your federal income tax return. Before you give, here are a few tips for making sure you make the most of your donation:
ENSURE: To make sure your gift is going to a good cause, research the organization and find out how it uses its money and how it’s led. Charity Navigator, a non-profit that rates and ranks charities, says charities that are an open book and follow good governance practices are less likely to engage in unethical or irresponsible activities. Its free database at charitynavigator.org can give you an assessment of the financial health, accountability and transparency of 8,000 of the country’s best-known charities. It’s also a source of information on more than 1.5 million nonprofits.
VERIFY: The IRS reminds taxpayers that only donations to certain eligible organizations are tax-deductible. To find out if your donation applies, use the “Select Check” tool on the IRS.gov website to search a database of eligible organizations. Most churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations even if they are not listed in this database, the IRS says.
Most Read Business Stories
- Bitcoin backlash as ‘miners’ suck up electricity, stress power grids in Central Washington
- Boeing sends exec to help Rolls-Royce fix 787 engine woes
- Amazon closing 130-person Seattle delivery support unit, moving the jobs to Phoenix
- Birth of a video game: How a small Seattle studio creates a sequel to a smash hit — with Microsoft’s help WATCH
ITEMIZE: In order to deduct your charitable donation, you must itemize on your federal tax return. That means people who choose the standard deduction or file using simplified forms such as 1040A or 1040EZ may miss out on this tax perk. Most tax software will alert you to the tax savings available if you itemize versus using standard deductions.
JUSTIFY: If you donate money, you need a bank record or written statement from the charity to prove the amount. This could include a canceled check, credit card statement or more. If a payroll deduction was made, the taxpayer should hold on to a copy of the pay stub, a form W-2 or other document from the employer showing the amount donated to the charity.
ASSESS: The rules are slightly different when you donate goods instead of money. Deductions for clothing and other household items are limited to the item’s fair market value, which you can find out more about on IRS.gov. Items must be in good or better condition to be tax-deductible. If the donation is worth $250 or more, you must also get a written acknowledgment from the charity. Special rules apply to donations of cars, boats and other types of property. Appraisals are often required for larger donations of property.