Charitable donations provide an excellent way for businesses and individuals to support their communities. Whether you make a monetary gift to a nonprofit entity or donate useful items to a religious organization, you’re helping improve the lives of others in need.
You can also benefit financially by making tax-deductible donations to a qualified organization that meets the eligibility requirements for a tax-exempt entity.
How to Deduct Your Donations on Your Tax Return
You can claim your deduction for making charitable donations when you file your annual tax returns. You’ll need to itemize your tax deductions by filling out Schedule A and sending it with your return. You won’t get access to the tax benefits of donating to a nonprofit if you take the standard deduction unless the IRS makes an exception for a specific tax year. For example, filers in 2020 could deduct up to $300 of cash donations without itemizing.
While giving money is the most common method of donating to a charitable organization, you can also deduct the value of items you contribute, such as furniture, food, automobiles, computer equipment or office supplies.
If you choose to donate items, you can only deduct the amount you paid for them, not their fair market value or FMV. The FMV is the price the item would reasonably sell for in the current market.
Are There Limits to Tax-Deductible Donations?
You may not be able to deduct the full amount of your charitable deductions on your tax returns. In general, the amount cannot exceed 60% of your adjusted gross income (AGI), although the threshold could be lower depending on the donation and organization type. This limit drops to 30% when donating appreciated property or stocks.
How to Calculate the Tax Benefits of Donating to a Nonprofit
You can determine your tax savings from making charitable donations with this straightforward calculation. Multiply your marginal tax rate by the value of your contributions.
For example, if your rate is 32% and you contributed $10,000 in cash, goods or both, you’ll end up saving $3,200 at tax time.
Tax Deductible Donation Considerations
Note that your donations will only qualify for a tax deduction if you contribute to an organization that meets the tax-exempt status criteria outlined in section 501(c)(3) of the Internal Revenue Code. Also, be sure to document your charitable contributions by keeping records related to the transactions, such as receipts, bank statements and canceled checks.
If you volunteer at a nonprofit, you can deduct any expenses directly related to your activities.
Get Expert Tax Assistance From Marshall Jones
If you’re in the Atlanta area and need help weighing the tax benefits of donating to charity, turn to the Marshall Jones Certified Public Accountants and Advisors. Marshall Jones is an experienced, reputable public accounting firm that can provide reliable tax preparation, guidance and numerous additional financial services to businesses and individuals.
Get in touch with our tax professionals today to learn more about the advantages of making tax-deductible donations to nonprofits.