It’s good to give, not just for the recipient, but also for the giver. A 2008 study by Harvard Business School professor Michael Norton found that participants who gave money to someone else were happier than those who spent that money on themselves; researchers saw similar results in experiments where they asked people to perform five acts of kindness each week for six weeks. I encourage you to give to charity out of altruism, and if the science backing the joy we experience from giving isn’t enough to convince you, it’s worth mentioning that your charitable contributions may also be eligible for a tax deduction. That being said, the IRS has many rules governing the eligibility and limitations of your contributions, so we’ll dive into the basics of charitable contributions in today’s blog. If you follow the rules, you’ll find that giving is a win-win situation for you and your cause of choice.
Before you plan to make your donation, know that not all charitable organizations qualify for a charitable contribution deduction. The first criterion is that the recipient must have tax-exempt status as determined by the United States treasury. Eligible recipients include organizations operated exclusively for religious, charitable, scientific, literary, or educational purposes; the prevention of cruelty to animals or children, or the development of amateur sports. It may come as a surprise that nonprofit veterans organizations, fraternal lodge groups, cemetery and burial companies, and even certain legal corporations can also qualify. The IRS Tax Exempt Organization Search tool can help you verify the tax-exempt status of the recipient in question.
The donation process is not difficult, but it does require documentation in order for you to get the potential tax benefits. To claim this benefit, you’ll need to itemize your deductions and file IRS Form 1040. To maximize your tax impact, you may want to strategize how you give. For instance, you can group your donations by donating in one year what you might have given over two years, then skip a year.
There are also rules in place for noncash donations such as clothes and household items. This is a great way of helping others while decluttering. The goods must be in usable good condition, and you will claim the item’s fair market value, which is a price similar to a thrift store value. If your total deduction is greater than $500, you will need to file IRS Form 8283, and cash or property donated that is worth more than $250 will need a written acknowledgment from the organization. The IRS has a useful resource to help you determine the value of your noncash contributions.