It is not uncommon for a person to want to make a difference and reduce the amount of human suffering in the world. Of course, just one person does not have the ability to solve all of the world’s problems, but each person does have the opportunity to do their small part. One way to do this is through donating to charitable organizations that are working to make the world a better place. Not only does this help others it can also give you tax deductions which can lower your taxable income and save you money.
Charitable contribution deductions
For tax purposes charitable donations are treated in varying ways in accordance with the tax- exempt status of the organization you are donating to. Treatment also varies depending on the type of asset you donate. Additionally, different rules are applied to the type of entity (individual, business or corporation) making the donation. The amount donated is regulated with various limits and standards enforced.
What types of donations qualify for deductions?
Tax laws determine which donations actually qualify to be deducted on your tax return. First, the law only permits deductions for donations that go to support a charitable purpose. The recipient organization must also be considered by the Internal Revenue Service (IRS) to be qualified for tax-exempt status in accordance with the federal tax code.
Qualified organizations must operate exclusively for certain eligible purposes to legally have tax- exempt status. These eligible purposes include religious, scientific, charitable, literary, and educational. Also, organizations focusing on preventing cruelty to animals or children do qualify. Development of amateur sports is considered an eligible purpose as well.
Some organizations can have donations received be considered eligible but only those donations that are designated specifically for aforementioned eligible purposes. This includes nonprofit veterans’ organizations, cemetery and burial companies, fraternal lodge groups, and some legal corporations.
Quid Pro Quo
If you donate to an organization but receive some type of economic benefit this is known as a “quid pro quo” donation. This could mean you receive some type of gift or service in exchange for your donation. These types of donations can only be deducted up to the fair market value of
the goods or services that you received. For example, if you donate $200 to an art auction for a charity for a painting with a fair market value of $100, you will only be legally allowed to deduct $100 from your taxes that year.
You can receive deductions for goods that you donate to a qualified organization. However, the amount you are allowed to deduct must be based on the fair market value of the goods.
On the other hand, there are special rules for deductions on vehicle donations. You will want to consult with your accountant or a professional financial advisor to determine how much you can deduct on your particular vehicle donation.
Charitable giving strategies
In order to obtain the most potential benefit from your charitable giving for tax purposes you will need to have a carefully crafted financial strategy. The timing of your donations to certain organizations and how much you donate at a time could make a difference in your potential for benefiting from tax deductions. Also, this should all be integrated into your overall financial planning. So, how might charitable contributions fit into your financial plan? Please give us a call to determine your best options and we will be happy to help you as best we can!
Any opinions are those of Rademacher Financial, Inc and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with us at Rademacher Financial, Inc. about your individual situation.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.
Rademacher Financial, and Raymond James and its advisors, do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.