Everything you Need to Know About Charity and Taxable Deductions!

by Avinash Mittal Blogger

Charitable giving is a recognized tradition across the world. From donating to your favorite charity to volunteering at an event, charitable giving is as important as spending time with friends and family. From a financial planning perspective, too, charity should be on your mind at the close of the year.

Data shows, 26% of taxpayers itemize charitable deductions on tax returns every year. This means with planning; you can make charity gift an essential part of your estate planning.

Some charitable giving has tax breaks more than others, and some receive different types of deductions. Here are some rules and benefits you must know about charity and taxes:

Charity gifts to a qualified organization will entitle you to a charitable contribution deduction against your income tax if you itemize deductions. Itemization is vital to take a charitable deduction. This brings the total deductions to be more than standard deductions. If this is not the case, stick with the standard deduction.
A contribution is deductible in the financial year in which it has been paid. A contribution made through a credit card is deductible in the year it is charged to your credit card.
Most charitable organizations qualify for a charitable contribution deduction. No charitable contribution deduction is permitted on gifts to certain other kinds of organizations, even if those organizations are exempt from income tax.
There are a different set of rules for non-cash donations. If you contribute an estate owned for more than a year, the deduction's value will be equal to the property's fair market value.
You must maintain proper documentation for every contribution made. This helps claim a charitable deduction for a cash gift and makes your claim more verifiable.
Be careful when valuing a donated vehicle. A law implemented in 2005 attempted a crack-down on taxpayers who were overvaluing donated vehicles. As a result, the IRS now wishes to have a closer look at such deductions. Thus, stay away from any attempt to use the fair market value unless any of the following cases are applicable: (1) instead of selling the motor-vehicle, the organization keeps and uses it, (2) they improve in the car before selling it, (3) car is sold at a discounted price to an individual with a low income, (4) or if the car is worth less than $500.