How Charitable Giving Can Impact Your Taxes

November 25, 2019

There are a lot of reasons to donate to charity, but it mostly comes down to one fact: giving feels good! It's no surprise that many Americans give money or property to organizations they care about; some give quite a bit.


From donating to your favorite charity to volunteering at a soup kitchen, charitable giving is every bit as important to the holiday season as spending time with friends and family. A charitable donation deduction enables you to lower your taxable income for donations or gifts to qualified, tax-exempt organizations.


What can you deduct?

First, you need to understand that only donations to qualified tax-exempt organizations count. Religious, veterans, and community organizations often qualify as tax-exempt. You can use the IRS's Tax Exempt Organization Search to find out which organizations have this status.


The federal government allows you to deduct a charitable gift to a qualified organization as long as you don't benefit or get anything in return for the donation.


Things you can't deduct

There also are criteria for what you can't deduct. Donating money to help a friend or member of your church isn't tax-deductible. Donations to most foreign organizations, civic leagues, labor unions, chambers of commerce, and other social groups also don't qualify.


Your time or services are not deductible either, but you can deduct out-of-pocket costs you incur while volunteering, Let's say you're a personal trainer who usually charges $100 an hour. If you donate five hours of your time each month to a legal aid clinic, you can't deduct $500 in charitable donations on your tax return. However, you could subtract the miles driven to the clinic at a rate of 14 cents per mile for charity.


It's essential to keep good records throughout the year. If you donate online, create a folder in your email where you can file the confirmation as you receive them. You can also keep an actual file folder for any paper receipts so you can easily find everything come tax time.


And though tax reform has led to changes in the standard deduction, you can still lower your taxable income by donating to a qualified organization — as long as you itemize.