How does charitable giving affect my taxes?

As a donor to a charity you are frequently eligible for certain tax benefits that you may not realize. Giving to a valid nonprofit organization, such as a 501(c)(3), is always ‘tax deductible.’ However, the more important question is: Will I get any ‘tax benefit’ from my donation? A ‘tax benefit’ would be the amount of reduction on your total tax bill as a result of your charitable contribution.

Giving to qualified organizations
In general, donations to religious organizations, nonprofit schools and hospitals, public parks and recreation facilities, 501(c)(3) charities, War veterans’ groups are all deductible. Donations to civic leagues, political parties, social and sports cubs, labor unions, individuals, and foreign organizations are not. To help guide you, the IRS provides an online search engine of Publication 78, which lists organizations eligible to receive tax-deductible charitable donations. Additionally, Publication 526 provides important for charitable contributions that are helpful when preparing your tax return.

Recording donations
In order to actually receive tax deductions you must keep an organized record of all your charitable donations. It’s important to save either the receipt, letter of recognition, credit card bill, or check stub as proof of your giving. Whenever possible, try to donate with a check or credit card, this way you’ll have an exact record of your financial transactions. If you do use cash for donations of $250 or more you will need to have a letter from the organization stating the amount of your donation. Frequently, people forget that when donating goods to the Salvation Army or other charities. The items are also tax deductible. To get tax credit for these donations, you will need to fill out Form 8283, as well as keep a detailed record of the item donated, it’s value, the organization you donated to and the date.

Filing taxes
In addition to recording your donations you must use Schedule A (Form 1040) to be eligible for tax deductions. If you take the ‘standard deduction’ when you file, there is no tax benefit. Depending on your ‘marginal tax bracket’ you will receive a tax benefit. Typically you can expect that the amount you contribute times your marginal tax bracket will give you your tax benefit.

Be aware that there are rare circumstances where if you donate enough to charitable organizations there is the possibility that you can move down a tax bracket and pay fewer taxes. It’s always best to consult your accountant and ask specific questions. According to C.P.A. Ken Totilo, “The most common problem that I have experienced in practice is that people are always chasing tax deductions; giving them to tax preparers to list on their tax return (making the returns more expensive to prepare) but never bothering to ask if they got any tax benefit from doing so.”

Originally Posted: November 6,2008 on NJ.com