Each year, as New Year’s Eve draws near, we think about wrapping up another year and managing our finances. We look ahead to the inevitable tax season and consider ways to reduce our tax bill or get a larger tax refund. A great way to do that is by making a charitable donation. Many people just like you answer the call, happily giving to their favorite nonprofits. This year-end generosity can pay off at tax time. To help, here are a couple of tax tips.
- Be sure to follow the Internal Revenue Service’s rules on tax deductions for donations.
- Be sure to give to a qualified organization. (i.e. a 501(c)(3) nonprofit.)
- Donations can come in many forms. Cash, stock, non-cash property, etc.
- Hold on to those receipts. Be sure to keep written communication from the nonprofit indicating amount donated, description of donation, and whether any good or services were exchanged for the gift.
- Don’t forget to itemize. You might give generously with hundreds or even thousands of dollars, but if you claim the standard deduction amount on their tax return, your charitable gifts won’t do any good when filing. Itemize expenses on Schedule A to deduct charitable donations. In most cases, there is no limit on how much anyone can deduct.
- On large gifts, there are deduction limits. Most nonprofits are known as 50 percent organizations. They get this name because donors’ deductions are limited to 50 percent of their adjusted gross income. For example, if a donor’s adjusted income is $50,000 and they give $30,000 to your organization, they can’t claim the full charitable gift in the tax year. They can only claim up to $25,000. However, the other $5,000 isn’t lost. They can claim the excess donation amount on your next year’s tax return. Donor’s have up to five years’ of “rollovers” to claim the full charitable gift.
- Timing is everything. Donations must be made by the end of the tax year. If you place a check dated Dec. 31 in the mail by that day, you’re in the clear. This goes the same for credit card transactions through online donations.
If you are considering a donation this year, consider supporting the Iowa Agriculture Literacy Foundation. You could make a big difference in the lives of students and the future of agriculture in Iowa!