A charity can lower your due tax. Now that we have got your attention, you need to read this article till the very end, and with undivided attention mind you, so that you can understand how you can claim charitable donations on your taxes. We are cognizant of the fact that 90% of you are allergic to the terms like tax returns, which is why we have tried to keep things as simple as possible. The blogs that one reads on the IRS website about the tax system and relevance with US charity are enriched with trivial details, which can bore you to death! If you are after a simplified version of things, then reading this article till the end might be the best thing you will do today!
Tax-deductible donations: an overview
What does the term mean? This is the first bit of this puzzle that we need to solve before we move towards more complex sections of this discussion. Well, in simpler words, by tax-deductible donations, we refer to the monetary contributions made to charitable institutes[i]. One condition that has to be met in this regard is that of tax exemption. But to claim tax-deductible donations on taxes, one has to itemize first. Briefly speaking, to itemize in the world of tax is to list your expenses that one can subtract from the overall income for reducing your taxable income. Quite a useful strategy, won’t you agree?
Key lessons that we learned from 2020? Sympathy, empathy, and giving! During the novel coronavirus pandemic, humans joined hands to help their fellow humans, without any discrimination. The numbers are getting impressive with every year passing, but 2020 will go down as the year of the decade, in terms of charity. Even if it doesn’t, it has served its purpose, which was to serve as a reminder for all of us that giving matters! No matter how big or small your contribution is, if there is someone who needs help, one should never hold back from donating. Maybe, it is your donation that will make someone believe in life, once more.
How can you claim charitable donations on your taxes?
Now, coming back to the issue around which this whole debate has been orchestrated, to claim deductible donations, you will need to fill the Schedule A/IRS Form 1040, a document that is concerned with itemization[ii]. Now, the next question that must be floating in your mind would be probably along the lines of how much can I deduct? Well, you can deduct as much as 60% of your gross income through donations, but some factors can influence this percentage. These determinants include the type of contribution, the organization, and any new allowances. For example, are you aware that for the tax year 2020, you can deduct as much as $300 of cash donations? In tax jargon, this is what we call an above the line deduction.
Donating carefully matters!
From being a simple act of nobility to a systematic process on which millions of people rely all across the world, charity has come a long way. As the process has become more and more sophisticated in the last few years or so, complexity has increased proportionally as well. Cataloging and categorization of the institutes involved in charity necessitate an in-depth review of the current US charity system. There is plenty that you are missing out on! For example, are you aware of the fact that your donations qualify for tax deduction only if you are donating to a tax-exempt 501 (c) (3) organization[iii]? One fine example in this instance is the Red Cross. Another example is that of Transparent Hands. Do we know some of you are scratching your heads as to how you can ascertain that the charitable institute of your choice is a 501 (c) (3) organization? Well, it is easy, all that you have to do is log on to the IRS Exempt Organizations Select Check Tool.
You must document your donations
We cannot emphasize enough this point. Sometimes, just because the donation is too little in terms of amount, people throw away the receipts casually. Once you are going to claim the deductible donations from IRS, you are going to need the documentary evidence of your contribution. Of course, you will have to provide other proofs as well. These include bank and credit card statements. But the piece of paper that matters the most is that little piece of paper which the charity gave you. In the case of electronic mail, do download or screenshot the proof.
Don’t ignore tax deductions for volunteering
IRS is not much help in the matter of time, but if there were any expenditures involved in your voluntary work, you can itemize those expenditures as well. There are a few boxes that you have to check though. Firstly, only enlist the direct expenditures that have not been or will not be reimbursed. We know you will be careful about this anyway, but please do make sure you are not confusing your personal expenses with the volunteering ones. However, gas money can be itemized in this case, which is a relief!
Should you keep making tax-deductible donations?
Absolutely, we have no reasons to suggest otherwise. Apart from the fact that you are benefitting in terms of tax money, you are also setting a nice example for your friends and kids. Taxes help us prosper as a nation, and if you can instil that spirit in your social circle, well, you should keep making tax-deductible donations in 2021 and the years to come.
Filling a tax return takes minutes, 30 at max. What we have talked about in this discussion can save you some bucks, provided you are a generous man/woman who loves to chip in for a cause. Well, we cannot see why you will not file your tax return anymore, even if you were hesitant about the idea previously. All that is left for you to do is do your taxes!