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Tax Deductions and Year-End Charitable Giving

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With the holidays quickly approaching, gifts are on the top of people’s minds. With the end of the year rapidly following, Christmas gifts aren’t the only gifts people are concerned with. Possible tax deductions and year-end charitable giving are on people’s minds as well.

December generally sees a higher rate of charitable giving than any other month. In fact, studies show that December giving hovers around 30 percent of giving each year.

Why do so many people give in December? Do the holidays create a season of giving?

It’s possible. However, another reason people tend to give toward the end of the year is that they’re preparing for 2017. They’re getting ready for tax season, and December is the last chance to get tax deductions for charitable giving.

How Charitable Giving Deductions Work

First, it’s important to note that charitable giving deductions only apply to organizations with official tax-exempt 501(c)(3) designation from the IRS. You can use this tool provided by the IRS to check and see if an organization is officially a 501(c)(3).

There are several types of donations that qualify for charitable giving deductions. We’ll go over a few of them.

Monetary Donations

Giving money to an organization without receiving anything in return is the simplest form of charitable giving. Donating property falls in the same category. To make this charitable deduction, it’s important to keep a bank record showing the name of the charitable organization and the date and amount of the contribution. A canceled check or a bank or credit card statement works. If your gift exceeds $250, you need further verification from the organization through a written statement with the amount and date of the contribution.

Payroll deductions fall into this category as well. For payroll deductions, you must keep a pay stub, W2, or another document from your employer showing the amount and date of your contribution, and you must also keep a pledge card or document directly from the organization you’re donating to.

Purchase Donations

If you purchase something from a 501(c)(3) organization, it’s treated differently than a monetary donation. Instead of being able to deduct the full amount, you can only deduct the amount paid minus the fair market value of what you received. For example, if you attend a charity’s silent auction and end up paying $75 for a gift basket worth $25, you can deduct $50 in charitable giving deductions. The same goes for attending an event. If you pay $100 for a seat at a dinner where the meal is worth $15, you can deduct $85.

These donations are significantly more tricky than monetary donations. To make sure everything with your charitable giving deduction is on the up-and-up, you need to be sure of the fair-market price of what you’re getting, whether it’s an item, a meal, or an experience. In the case of the auction mentioned above, you’d have to prove that you knew the fair market value before bidding.

Like monetary donations, it’s important to keep excellent records of your purchases, and it’s also important to have paperwork documenting the fair market value of what you bought. Because purchase donations are more difficult to understand and to get right, it’s a good idea to talk to an accountant before claiming these charitable giving deductions.

Because purchase donations are more difficult to understand and to get right, it’s a good idea to talk to an accountant before claiming these charitable giving deductions.

In-Kind Donations

If you’re not able to donate monetarily, you may still have a way to do some year-end charitable giving. In-kind donations are donations of goods rather than cash. Donation of services can also be considered in-kind, but because that type of donation is not tax deductible, we’ll steer away from it.

Anytime you donate goods to an organization, even used goods like clothes or video games, you can write off the fair market value of your donation. The fair market value is the price your donation would sell for in the open market. The IRS provides a guide for determining the value of your donated goods.

Like all other types of donations, documentation is key for charitable giving donations.

Make Your Donations Now

With the end of the year just weeks away, now is the time for year-end charitable giving. It’s your last chance to receive tax deductions.

If you’re looking for a reliable 501(c)(3) to donate to, we ask that you consider Charity Nerds, an organization dedicated to bringing the power of play to hospitalized children. Visit our website for more information.