Year-End Charitable Gifts and Taxes

by Emily Guy Birken on October 25, 2012

It may feel a little early to worry about it, but now is the perfect time to start thinking about the season of giving. Christmas and Hannukah is not just a good time to give presents to those we love—it’s also an excellent opportunity to make charitable gifts. Not only will you feel good about helping out those who are less fortunate, but you can also help your tax bill at the same time.

Here is what you need to know about making charitable gifts before the end of the calendar year:

Remember the 50-30-20 Rule of Deductions

Generally, you can deduct the full value of cash gifts to qualified charities for up to 50% of your adjusted gross income. So, if you earn $50,000 per year and donate $30,000 to your favorite charity, you may deduct up to $25,000 of that gift. You can also carry forward the non-deductible $5,000 to 2013, and deduct it from your taxes in that year.
If you are donating property to a charity, the limit for deduction is then 30% of your adjusted gross income. That means that if the same taxpayer who earns $50,000 per year donates a $20,000 vehicle to a charity, $15,000 (30% of AGI) may be deducted from his 2012 taxes.

Finally, if you are fortunate enough to be able to donate money you earned from capital gains, your deduction limit is 20%.

Pledges are Not Enough for Deduction

If you decided to call and pledge $40 per month during the last public radio drive, you cannot deduct $480 from your taxes, because you have not yet paid it all. You can only deduct the amount of money that you have already given the charity, even though you have made a pledge to give more.

Keep Good Records

Since you will have to itemize your taxes in order to take advantage of the charitable deductions, you need to keep all receipts from donations. Those receipts or documents need to include the charity’s name (and tax payer identification number, if available), and the date and amount of your contribution. You may also use a canceled check, bank statement or credit card statement that includes this information as documentation of donations less than $250.

If you give more than $250 at one time, you will need an acknowledgement letter from the charity in order to take advantage of the deduction. This letter must include a statement of how much you donated, an explanation of whether the charity provided any goods or services in exchange for you donation (such as a charity dance or a thank you tote bag), and a description of the goods or services provided, along with a good faith estimate of their value.

Make sure your Favorite Charity Qualifies

While many of the larger charities and religious groups are clearly on the IRS list of qualified charities, it can be more difficult to discern if smaller charitable groups meet the criteria. The IRS offers a database of qualified charitable organizations where you can check to see if your charity qualifies.

It’s important to note that donating to foreign charities is not tax deductible, but many of these charities also have American branches that will allow you to still give money and save on taxes.

The Bottom Line

The end of the year can be a tough time for many people in need. If you’re in the position to make a donation to charity, now is a great time to do it. You know that your money can really help, and you can make sure your financial house is also in order.

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Emily Guy Birken

Emily Guy Birken is a freelance writer and stay-at-home mom who is passionate about personal finance. She lives in Lafayette, Indiana with her mechanical engineer husband and her toddler son. She blogs about parenting at The SAHMnambulist and about the funny side of money at Live Like a Mensch.

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  • Jason @ WorkSaveLive

    While we give to a little extra money at the end of the year for various holiday endeavors, we don’t intentionally give just for the tax deduction. In fact many of the things we do don’t technically qualify as giving to a charity so we’re not even able to deduct them.

  • John S @ Frugal Rules

    Good tips. I don’t think it’s ever too early to start planning for these things. A lot of our giving is not for the deduction, but we definitely start looking for how we can give more and help the organizations we care about.

  • Veronica @ Pelican on Money

    Great explanation of charitable deductions! Unfortunately I’m currently not in a position to donate money – just time.

  • http://www.momoneymohouses.com/ Mo’ Money Mo’ Houses

    I always donate money to a charity around this time of year, I just don’t know which one I’ll choose this year.

  • http://twitter.com/bitfs BFS

    I’ve sort of stopped bothering with donating stuff to places like Goodwill since we never donate enough for it to matter anyway. It’s become faster and easier to just give things away for free on Craigslist, lol.

  • http://WealthArtisan.com Timothy Artisan

    When it comes to donating to places like Goodwill and Salvation Army, our records could be better. I think it is always a good thing to keep this type of giving in the back of your mind. If you don’t have someone to give it to directly, then donating is certainly a great alternative!

    Thanks,
    Timothy

  • http://Www.Plantingourpennies.Com/ Mrs PoP @ PlantingOurPennies

    We have yet to hit the hurdle where it makes sense to itemize our deductions, it’s a pretty high hurdle when you’ve got two people!

  • http://clubthrifty.com/ Greg@ClubThrifty

    We usually sponsor a family for Christmas…but we haven’t made a decision on that yet. I need to keep better records and get receipts when we donate to Goodwill.

  • http://twitter.com/Eyesonthedollar Kim

    Great tips. We talk about this a our humane society board meetings all the time to make sure we are giving proper receipts. We’ve seen many articles about charitible donations getting denied for tax breaks because of poor documentation. I hope people give with an open heart, but it never hurts to get the tax break as well.

  • http://www.youngadultmoney.com/ DC @ Young Adult Money

    Great post, definitely something to keep in mind around the holidays.

  • http://www.onesmartdollar.com/ Sean @ One Smart Dollar

    I am right there with you. I know that I need to do more than just giving away old clothes and other items. There are so many people that need the clothes so I still feel good doing that.

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  • http://www.yoursmartmoneymoves.com/ Ted Jenkin

    Great article!

    One great idea is to go to http://www.satruck.com and look at the valuation guides as a rule of thumb for charitable deductions…

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