Donating to charity is a worthwhile endeavor and can reap tax benefits as well, depending on your financial situation. When you file your taxes, if you have expenses that can be itemized, you do not always receive the maximum tax benefit possible by itemizing -- sometimes the standard deductions and exemptions yield the higher tax savings. However, to deduct charitable contributions, you must itemize your taxes.
Qualified Charitable Contributions
Charitable contributions are deductible when you itemize if they are donated to a qualified organization. There are five types of qualified organizations: a community chest, corporation, trust, fund or foundation organized in the United States for religious, charitable, educational, scientific or literary purposes, or for the prevention of cruelty to animals or children; war veteran's organizations; domestic fraternal societies operating under the lodge system; nonprofit cemetery companies or corporations; or the U.S. government, state or local government, U.S. possession or a tribal government. An example of governmental giving is a donation to the police department to be used as a reward for a crime.
You can itemize contributions to charitable organizations on Schedule A of up to 50 percent of your adjusted gross income, depending on the type of donation you give and the organization to which you donate. Certain types of organizations are designated as 50 percent organizations. Some are listed in IRS Publication 78, or you can ask the organization. If you donate capital gain property, and you figure the donation using the fair market value without deduction for appreciation, you are limited to 30 percent of your adjusted gross income. There is a 30 percent limit on gifts to all organizations other than 50 percent organizations, unless they are of capital gain property, in which case the limit is 20 percent of your adjusted gross.
If you donate property to a qualified charitable organization, you generally deduct the fair market value of the property at the time of the contribution. Figuring the fair market value for property can be challenging, but the IRS offers guidance on how to determine the value. For example, if you donate a car you can use the Kelley Blue Book valuation to determine your deduction, but if you donate a boat, the IRS recommends the valuation be performed by a marine surveyor. These amounts, once determined, are itemized on your taxes.
The records you must keep are determined by the type of donation you gave -- cash, non-cash or out-of-pocket expenses you made when donating your services. For cash contributions, you must have a bank record, such as a canceled check, that shows the name of the institution, date of the donation and the amount; a receipt from the organization; or payroll deduction records. For non-cash contributions, you need a receipt from the institution detailing the contribution, date and amount and, depending on the value of the gift, you may also be required to keep records of the fair market value and how you figured it, the cost basis and any conditions placed on the donation.