Donations are an excellent way to both reduce your overall tax burden while doing a little good in the world. But just because you've donated money throughout the year doesn't mean that it was all deductible -- or that you've covered all your bases. Here's some information you should know about adding donations to your tax return.
1. Make Sure the Charity Was a 501(3)c Charity
You can't just give to any good initiative and hope to deduct it from your taxes. Any donation has to be to a 501(3)c charity or it is not tax-deductible. Charities that have this designation will usually publicize the fact, but you can also request information from the charity itself. If the charity was an international one, it should still have an American 501(3)c designation to ensure that it's deductible.
2. Always Get Your Receipts
Receipts are important for more than just remembering your donations. Donations will need evidence in order to uphold in the event that you are ever audited. Though a bank statement or credit card statement can help, a receipt will give far more verifiable information. You can keep your receipts digitally if you don't enjoy keeping paper files.
3. Don't Forget Your Non-Monetary Contributions
Many people only claim the money that they donated on their taxes, but you can also claim non-monetary contributions such as clothing, electronics, and even cars. When you book a non-monetary contribution, you estimate the item's value at the time. Some charities will do this work for you. You can then deduct that item's value just as though it was a cash donation. This must be a current market value rather than the amount that the item cost to initially purchase.
4. Remember That a Deduction Can't Gain You Money
Because charitable donations are such popular deductions, it's often thought that charitable donations can save you money. But that's not necessarily true. A charitable donation is simply income that is not taxed to you. You'll still need to spend money on the donation itself -- you won't get that money back in taxes, you'll simply not be charged income tax on that money.
Your accountant can help you organize your tax deductions and determine the right amount of deductions for you. Deductions can only be removed for charitable contributions up to a certain amount, which depends on your own income and how you are filing. After that, the income will still be taxed.
For more information and assistance, contact a professional accountant or tax preparation specialist, such as those at Vlasac John M & Co.