Everyone looks for ways to save on their taxes. Deductions are the one of the best ways to do this. There are so many types of deductions, but many are only available to certain taxpayers that meet specific requirements. On the other hand, there are some other very common deductions available to just about everyone, including mortgage interest, childcare expenses and charitable donations. Charitable donations are a great way to get an extra break on your taxes. Plus, you get the satisfaction of giving to a good cause, while at the same time giving less to the IRS. However, before you give yourself a big pat on the back for your philanthropy, make sure your charitable donations meet all the necessary requirements.
One of the biggest problems taxpayers face is trying to count charitable donations that don’t qualify as tax deductions. There are several scenarios that fall into this category. Let’s review a few of them.
Undocumented Donations – this is possibly the most common mistake taxpayers make with charitable donations. If you give to a good cause then you have to make sure you keep a record of it. Without a record, you have no proof and the IRS will not accept it. For example, if you give money to some kind of donation center at a store or a church or anywhere else, but you don’t get a receipt, then you won’t get credit from the IRS.
Gifts for Yourself – you also can’t give donations to any kind of charitable cause in which you receive a gift in return. For example, if you buy something that goes to a charitable cause, you still can’t count that as a charitable deduction because you received something of value in return.
Fund-Raising Gifts – another mistake taxpayers make is counting gifts to fundraisers as a charitable donation. If you purchase things like lottery-based contests or raffle tickets, or even fund-raising causes to help a community drive, these do not qualify as charitable deductions.
A Pledge to Give – many people make a pledge to give to a charity, which is a good thing to do. However, a pledge does not actually constitute a donation and therefore you cannot deduct it, until you actually pay the pledged amount.
Political Contributions – even though you might be feeling patriotic and want to give to a cause you believe in, making donations to political candidates, causes or parties will not get you a tax deduction come tax time.
What Can You Deduct?
According to the IRS, charitable donations qualify as tax deductions under the following circumstances. “You can deduct contributions of money or property you make to, or for the use of, a qualified organization. A contribution is ‘for the use of’ a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. The contributions must be made to a qualified organization and not set aside for use by a specific person. If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution.”
Keep Track of Everything
So, the bottom line is, when it comes to making charitable donations count as tax deductions, you have to keep a record of it. If you fail to track all your donations, you can’t get credit for them. You might get away with it if the IRS doesn’t audit you, but if they question it and you can’t produce a valid receipt or some form of proof then you won’t get credit. One other caution: if you claim an unreasonably high amount in charitable donations, it will likely catch the IRS’s attention as well. Even if it’s a legitimate donation the IRS is still likely to at least take a second look. However, don’t be afraid to make legitimate charitable donations and don’t be afraid to claim them all. As long as you have a record of it, you’ve got nothing to fear.