Charity is a substantially more important piece of your itemized deductions with the new tax changes. It can easily be the largest single item, and the limit is so high that most people aren’t even aware of the cap. Here’s what you need to know if you’re planning on making charitable donations part of your tax plan.
First, can you even take a charitable deduction? Charitable deductions only occur if you’re itemizing your deductions on your Schedule A, not when you are using the standard deduction. Remember that the standard deduction went up a lot (now $12,000 for a single person or $24,000 for a married couple) and that a lot more people are going to qualify for it. Make sure that you’re going to be itemizing this year during your planning!
Now, here are the rules that affect your charitable donations:
- Money donated to a charity: small amounts (less than $250) just need contemporaneous records (a bank record or written acknowledgement from the charity with the name, date, and amount), but amounts larger than that require a letter of receipt that contains the specific language “no goods or services were provided in exchange for this contribution” and the deductible account of the donation that is dated and on the charity’s letterhead (email works too though as long as it says the right things).
- Volunteer time: Your time, no matter how much you normally bill per hour, isn’t deductible on your taxes. That’s true even if you would normally be paid for the kind of service you’re providing, like professional services. For example, accountants can’t donate free accounting or tax preparation work.
- Volunteer car travel: However, if you’re driving to go volunteer your time or using your car in your volunteer work, there is a statutory rate set for a deduction: $0.14 per mile. So keep notes when you drive for charity (or use a handy app) and then let your accountant know at the end of the year.
- Overnight travel: Similarly, you might be able to deduct the cost of overnight travel for charitable work as long as they are “reasonable” and not connected with any personal or recreational activities.
- Out-of-pocket spending: Finally, if you spend money on supplies necessary for your volunteer work, like stamps and envelopes, those costs are deductible (so keep your receipts). A weird uniform, like a smock, could also be deductible as long as it’s “unsuitable” for everyday personal use.
- Non-Cash Donations: If you’re donating clothes or household items to Goodwill or Salvation Army, you’ll still need receipts. We also recommend that you take pictures of items donated as proof of condition.
- The upper limit: You can’t deduct more than 50% of your adjusted gross income for charity in a year. There are special limits for non-cash donations (such as property or stocks), so check with your accountant if those figure into your plans.
- Donations of cars: You’ll need special paperwork to donate a car to a charity. Hopefully the charity knows that and will provide it, but double check this if your donation is of a car or other vehicle.
- Stock Donations: You might actually get bigger breaks for donating stocks upon which you have a gain. So if you bought low and want to donate high, that might be worth it because you might get the fair market value as a deduction instead of value minus basis. Talk to your accountants to see.
Don’t forget that you’re the ones that have to substantiate your donations if the IRS comes looking, so keep your receipts, your letters, your notes, and your pictures.
If you have questions, your accountants can help you make the best decisions.