Should You Donate to Charity for Tax Deductions?

By Kelly B. — Published February 18, 2018

Should You Donate to Charity for Tax Deductions?


As the end of the calendar year comes closer, businesses often feel intimidated by the job of filing their tax return. It's not an easy task at all because you have to do the math, check facts and figures, and look for ways to lower your tax liability. You might have to hire a professional at some point if you feel too stressed out while filing your tax return. The best part- you can get a tax deduction for the fees you pay to the professional!

While talking about different ways to lower tax liability, claiming a tax deduction for some business expenses is a good way to do so. But there's also another way, you as a business owner can claim a tax deduction, and that's charity. If you have unused assets and extra liquidity, which you can give away as a donation, you perhaps can get charity tax deductions. Outdated furniture, equipment, machinery, and vehicles are good examples of assets that can be donated for getting tax deductions.

How to get charity tax deductions?
You can claim for an income tax deduction for a gift if you itemize deductions on your return form, but only if the donation is made to a certified charitable institution or organization. Taxpayers are usually eligible to claim a standard deduction, and itemizing generally pays off when you cross the limit of that deduction. When you claim a charitable tax deduction, your tax bracket increases and your savings go up.

Take, for example, you fall in the 35-percent tax slab and you make a $100 charity. It's going to cost you $65. But if you fall in the 15-percent tax bracket, the cost of the same charity would be $85. So, the wealthier you are, the more beneficial a charitable donation is. There are many qualified organizations that you can donate to for getting charity tax deductions. Here are a few examples:

• Tax-exempt educational institutions
• Churches and religious establishments
• Government agencies
• Public-supported, federally funded organizations
• Hospitals and medical research institutions exempt from paying tax
• Private foundations that distribute received contributions to the public
• Membership organizations whose one-third of contributions come from the public

You can't claim a charitable tax deduction if you make a donation to an individual, international charities, foreign government, political parties and campaigns or political action committees, and social welfare organizations.

There are no limitations on the amount of charitable contributions you can make to qualified organizations. But there are certain limitations that emerge when you are making donations of appreciated capital gains or property. For non-cash donations, such as household furnishing, old clothing or office equipment, there are certain rules to be followed. The tax deduction for property donations is equal to the fair market value of the property. The IRS requires clothing and household items to be in a “good condition”. You will need a receipt for these goods for claiming a charitable tax deduction.

Tips to follow for claiming charitable tax deductions
You should follow the tips below while deducting donations and contributions to charity:

• Asset valuation: You should calculate the fair market value of the asset in question to know which is a profitable option- donating the asset or donating the proceeds from selling the asset.
• Business property appraisal: You have to demonstrate the accuracy of the asset's fair market value for property donations exceeding $250.
• Approach a tax adviser: You should consult a tax adviser to know whether to donate the asset or its sale proceeds.
• Documentation: It's advisable you document your donation in the form of a letter from the charitable organization in order to claim a tax deduction.

Claiming a charitable tax deduction requires you to itemize deductions on Schedule A and file Form 1040.

Related Articles