While many of us show our generosity throughout the year by donating to charity and volunteering our time to help causes we support, there's no better time than the holidays to get into the spirit of giving. In fact, an estimated 75 percent of Americans plan to donate to charity during the holidays.
What many people don't realize is that you can turn your generosity into tax savings by making charitable contributions to qualified organizations. In order to claim donations to charity and non-profit organizations on your tax return, you'll need to itemize your deductions.
What are the IRS rules for claiming donations on my tax return? In order for your donation to be tax deductible, it must go to qualified organizations (more on the specifics around qualified organizations are below) and you must have documentation of your contributions. Types of deductible expenses can include cash, non-cash items like clothing and household goods and mileage driven on behalf of a qualified charity.
Donations made by December 31, 2014 are deductible on your 2014 tax return, the one you file in 2015. To be considered "made by December 31," a cash gift must be received by the end of the year. A check must be mailed before the end of the year, even if it is not deposited by the receiving organization until January. If you choose to make a gift by credit card, the charge must occur by December 31 -- it will still count as a potential 2014 deduction even though you likely won't pay the credit card until early 2015.
- Public charities, such as Goodwill, Salvation Army, Red Cross, United Way, Boys/Girls Clubs of America
- Religious organizations, such as churches, synagogues, temples and mosques
- War veterans groups
- Local, state and federal governments, if the contribution is for public purposes
- Nonprofit hospitals, schools and fire departments
- Public parks and recreation facilities
If you're not sure whether an organization qualifies, you can use this IRS charity search tool to look up an organization by name and location.
Now that you know the basic rules and requirements for claiming charitable donations on your tax return, here are some tips on how to maximize your tax savings during the season of giving.
Keep proof of your gift. You'll want to hold on to your bank statement, cancelled check or credit card receipts showing the amount of the donation. For any gifts of cash or property worth more than $250, you'll need to keep the written acknowledgement from the charity showing the date and value of donation. If you donate property, jewelry, furniture or other items valued at more than $5,000, be sure to get an independent appraisal -- the IRS requires it.
Clothing or household items must be in good shape. You can deduct only the fair market value of the items, so second-hand clothes and other used goods must be in at least "good used condition." Taxpayers often underestimate their charitable donation or lose track of donations they made earlier in the year and end up paying more in taxes.
You can use tools like ItsDeductible to track and calculate the IRS-approved value of your donations of things like clothing, toys or bicycles and more. This free tool (also available on iOS) lets you track donations anytime, anywhere, year-round, to accurately track and value donated items. You'd be surprised by how much these gifts can add up.
Money spent volunteering counts, too. You can write off many out-of-pocket expenses you incur to do good work, including what you pay for materials, supplies, uniforms, stationary, stamps, parking and tolls directly related to volunteering. You can also deduct the cost of driving to and from your volunteer work, at a rate of 14 cents per mile driven as long as it's in service of volunteering for charitable organizations. If you take public transportation, that bus or rail fair is deductible, too.
These are just a few tips to help you turn your year-round generosity into tax savings. For more tips on claiming and maximizing charitable donations, check out the TurboTax blog.