End-of-Year Tax Deductions | Informed Donating
If you want to make charitable donations before the end of the year, you’re not alone. According to Giving USA, an estimated $484 billion was given to charity in the U.S. in 2021, a 4% increase from 2020.
Regardless of the causes you support, there are a few questions to keep in mind before opening your wallet.
Are they a qualified charitable organization?
While most religious organizations, such as churches, synagogues, mosques, and temples, are eligible to accept donations, there are some exceptions. But what about the local food bank or animal shelter? Ask to see the organization’s IRS Determination Letter, which tells you if the organization can accept donations. If that’s not possible, you can check directly using the IRS Tax Exempt Organization Search Tool.
Also, keep in mind that any donation given to an individual does not qualify as a tax-deductible donation, no matter how worthy their cause.
Did you receive a gift?
Be mindful of gifts. If, for example, you write a check for $250, but receive two complimentary tickets to the organization’s annual gala, you can only deduct the amount after the ticket cost is considered. The same goes for t-shirts or other commemorative items. If a gift is offered in return for a donation, ask the organization if they can deduct the cost of the gift from your donation total in their thank you letter.
Speaking of thank you letters, be sure you get one, or a receipt that documents what you donated to the organization. This is especially important if you donate over $250 because the IRS will need a receipt or letter for documentation purposes. Also, be sure to get a receipt if you donate in cash or you won’t have proof of your contribution.
Do you know how they use the funds they receive?
You have the right to ask to see a charity’s annual reports and documentation on how they allocate funds. According to The Charities Review Council, roughly 65% of an organization’s total expenses should go towards programs. Keep in mind that a percentage of funds needs to go towards staff, maintaining finances, and running programs.
Taking a few minutes to research can help ensure that your money is used wisely. And if you do choose to donate to an organization, be sure to do so before December 31st, or your tax deduction will have to wait until next year.
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