Being a part of a charitable cause helps promote the greater good and can also make the donor feel good about themselves. Apart from the good vibes, it comes with another advantage, i.e., tax benefits. However, before filing tax returns, there are certain guidelines you shouldn’t overlook. Read further to know how you can make the most of your philanthropic endeavors.
- Itemize to claim the contribution
To claim a tax deduction for charitable donations, you need to itemize the contributions on tax return’s Schedule A, using the form 1040. You can file taxes with the help of an accountant or by yourself using a computer software.
- Contribute to a qualified tax-exempt charity
Typically, charities need to have a 501(c)(3) status to qualify as non-profit organizations such as educational institutions, hospitals, certain government agencies, and humanitarian foundations. However, establishments such as churches or other forms of religious entities are not mandated to acquire a 501(c)(3) status from the Internal Revenue System.
- Collect the receipts
To claim tax benefits, it is imperative that you save the receipts and appraisal letters from the charitable organizations. Moreover, if the donation made to the charity exceeds $5000, then you need to get a professional assessment done in order to claim the tax deductions.
Claims excluded as tax deductions under charitable donations
Some contributions stated below can’t be used to file tax deductions –
- Donations made to individual people
- Donations made to political campaigns, political parties or committees
- Donations made to business organizations or labor unions
- Donations made to schools and hospitals which aren’t NPOs (non-profit organizations)
- Donations made to the governments of foreign nations
Limits on charitable donations
The IRS has levied certain limits on the amount of tax benefits one can claim using charitable donations. Typically, your claims of charitable contributions shouldn’t exceed 50% of the adjusted gross income. In some cases, depending on the type of contribution made, such as a property, the limit on the tax benefit can be further reduced to anywhere between 20% and 30%. If your charitable donations are more than the prescribed limit, then the surplus amount will be moved to the next year’s tax filing season, so that you can claim your benefits then.