Taxes and giving: what do these two things have to do with one another? Well, indeed there are many ways taxes and giving relate to one another, especially when it comes down to the individual. There are many reasons people give to charitable organizations, and though it shouldn’t be the main reason, receiving tax incentives is a wonderful benefit for the individual taxpayer.
In 2016, 36.95 million tax returns claimed charitable contributions. What does this mean for those taxpayers? Well, it means that throughout the year, when folks have planned or spontaneous desires to give cash or non-cash items, they receive a receipt. The importance of that receipt is, as with anything with our taxes, to be able to provide proof of the gift and its value.
Breaking it down:
Noncash donations —
- Donations up to $250 in value, all that’s needed is the receipt for the charitable donation deduction.
- Contributions over $250 but no more than $500 requires a detailed, written acknowledgment from the organization; it must include: name and address, the date and location of contribution, description of the donation, and an estimate of the item’s value,
- Donations over $500 but no more than $5,000 require the above information ($250-$500) as well as the records of how you acquired the noncash item, such as how much you paid for it.
Car donations —
Some steps need to be considered when donating a car because it depends on the vehicles selling price from the organization, or if it’s not sold, by the fair market value:
- Step 1: Determine how much the car was sold for by the charity, but if it’s sold significantly below market value, you can use the fair market value.
- Step 2: Determine the car’s fair market value, and it’s important to use a reputable used-car price guide so you can calculate if you need to use the fair market value.
- Step 3: Claim the deduction on line 17 of Schedule A.
- Step 4: additional forms that are needed include:
Form 8283 Section A for car donations $501 to $5,000
Form 8283 Section B for car donations over $5,000 and this section requires a written appraisal as documentation.
How do these cash and noncash donations help charitable organizations? Nonprofits have three primary funding sources: fees charged, government grants, and charitable giving. So, the giving, especially of unrestricted cash donations, is extraordinarily important, thus fulfilling for the giver.
How exactly do these deductions help you, the taxpayer? The IRS allows the deduction for taxpayers that are filing their return with an itemized deduction schedule, and a deduction lowers the amount of taxable income before taking into account your tax liability.
Some websites and organizations exist to help you responsibly learn about, make, and track your charitable donation deductions throughout the year:
Charity Navigator: A charity navigator that provides information to guide responsible giving with details on the Financial Health, Accountability, and Transparency of over 9,000 charities, as well as basic information on the other 1.8 million U.S. nonprofits. Charity Navigator is itself a 501 C 3.
Better Business Bureau Give.Org: An organization that evaluates charities based on governance and oversight, measuring effectiveness, finances, and solicitations and informational materials. This also helps to provide reports so donors can make informed decisions with the donations.
IRS and Charitable Contributions: The IRS has information surrounding utilizing charitable deductions, from the most basic to more detailed information.
When taking into account your decision to make charitable donations, don’t forget to check the boxes to make sure that your charitable donation deductions will be able to be utilized. Always do your research, and feel good knowing where your gifts are going and how they can also benefit you!
If you’d like to donate your car to help someone recover from the Paradise fire or another valued non-profit, reach out to firstname.lastname@example.org to donate a car that runs and email@example.com to donate a vehicle that does not. Check out their respective websites https://cars2ndchance.org/ and https://www.clunkers4charity.org/. The organization has received 30 cars for the Paradise survivors, but they need more, as you can well imagine.