Everyone wants to be benevolent, but when you are struggling to overcome debt and win financial independence, it feels impossible to spare even a penny for the less fortunate. However, when you donate properly, both you and your organization benefit. Charitable contributions are fully deductible on your annual income taxes, which means you can help others and be financially savvy — but only if you follow the IRS’s rules to the T.
Identifying Worthy Causes
The first step in making smart charitable contributions is deciding which cause you feel comfortable supporting financially. To do this, you might first consider issues that inspire and impassion you. Some popular causes include:
- Medical research
- Disaster relief
- Human rights
- Child welfare
On the Web, there are lists upon lists of local, national, and international organizations sorted by category, so you can find a number of charities that support your cause and will gladly accept your donations. You might even happen upon an organization that connects two of your causes with one endeavor, like these groups who train rescued pets as therapy animals to visit hospital-bound patients.
Finding Qualified Organizations
Doing good should make your heart happy, but that shouldn’t mean you should act without your head. Charity Navigator, an organization that evaluates the effectiveness of charities, discovered that more than 85 percent of charitable giving occurs with absolutely no prior research on the beneficiaries. This indicates that most donors are unaware of the ultimate outcome of their charitable gifts, and plenty of organizations are pocketing the profit of that ignorance.
To avoid scams, you should conduct thorough research on your chosen charity. Most importantly, you must locate charities that are qualified by the government to provide tax deductions. Some organizations, including political and private groups, will gleefully accept financial contributions, but these donations are not tax deductible. Additionally, an overwhelming majority of charities neglect to post data on the outcome of their work, which means your money and goods could easily be squandered. With some probing, you should be able to discover which charities will put your contributions to good use.
Making Monetary Donations
Cold hard cash is what most charities love most, but plenty will accept monetary donations in any form: paper, plastic, or digital. However, before you cut your chosen charity a check, you should ensure that your budget can withstand this extra expenditure. It would be a shame to injure your own finances while trying to give aid to someone else.
Money is the most common variety of contribution, so the IRS has cut-and-dry rules about the proper ways to donate. First, any donation less than $250 requires only a credit card statement or detailed record to substantiate, but gifts of $250 or more necessitate a formal receipt from the benefitting organization. To be safe, you might request a receipt no matter how much you give.
Giving More Than Money
Of course, most charities do good works with more than money, and plenty willingly accept all sorts of goods to help them achieve their goals. More likely than not, you have previously given away old, poorly fitting clothing to a local charity, but other organizations are willing to take more than last season’s wardrobe off your hands. For example, Boat Angel gladly accepts donations of boats, cars, and other vehicles in nearly any condition, and other charities will take in old furniture, electronics, and even entire houses to help the needy.
The IRS states that donations of persona property besides money is valued at its fair market price, as long as the items are in good, working condition — except vehicles, which have special regulations. Property donations totaling $500 or more require written corroboration from the charity (or charities). If you elect to give a vehicle, you should expect the deduction process to be slightly more complicated, as you must wait to learn how the organization used your vehicle and what amount (if any) it eventually earned from the vehicle’s sale. Still, in many cases, vehicle donation can be easier and more profitable than attempting to sell.
Keeping Good Records
No matter where, what, or how much you donate, the most important step in making smart charitable gifts is the record-keep afterwards. The IRS is wisely skeptical of endowments, particularly large ones that greatly impact an individual’s taxes due. Thus, you must be meticulous at itemizing the cash or items you give away; you should make detailed notes on when you made your donation and what value you and the charity ascribe to it, and you should bundle this information with any documents given to you by the organization. The IRS is free to audit any taxes filed within three years prior, so you should hold onto all of your financial records (including evidence of charitable contributions) for no less than four years.