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How to Get the Greatest Tax Advantages by Donating Money to Charity

Since Hurricane Katrina hit the Gulf Coast, Americans have donated $503 million in gifts and pledges to the American Red Cross for the hurricane relief effort. More continues to pour in each day, not only to the Red Cross but to other relief organizations as well. These donations are of great help and reassurance to the survivors, and, of course, this is the primary reason for giving to charitable organizations.

However, as a donator you are entitled to certain tax advantages, and if you don't know what they are, no one is likely to point them out to you. Here are the basics you need to know.

You're generally allowed
to donate up to 50
percent of your adjusted
gross income.

Which Charitable Donations are Tax Deductible?

Only donations to qualified organizations are deductible. These include federal, state and local governments and organizations organized and operated only for:

  • Charitable purposes

  • Religious purposes

  • Educational purposes

  • Scientific purposes

  • Literary purposes

  • Prevention of cruelty to children or animals

If you are unsure, the organization will be able to tell you whether your donation qualifies for tax benefits. There are some exceptions and rules to be aware of.

First, if you get merchandise, goods or services from your contribution, you must subtract the fair market value of those items from your deduction. For instance, if you buy a ticket to a charity dinner for $150, and the dinner is worth $60, you can only deduct $90. Also:

  • If you donate $250 or more, you must get a written receipt in order to deduct it.

  • When claiming property donated to charitable organizations (clothes, furniture, household items, etc.) you can only deduct the price the item would sell for at a garage sale, flea market or thrift store (not what you paid for it).

  • If your non-cash property donations exceed $5,000, an appraisal is generally necessary for it to be claimed.

Qualified Organizations for
Tax-Deductible Donations

The following are some organizations recognized by the Internal Revenue Service (IRS) as eligible to receive tax-deductible charitable contributions, but there are many, many more out there. For a complete list, see the IRS' Publication 78.

  • Alive on the Lakeshore (Muskegon, MI)
  • American Living Memorial to the Holocaust Museum of Jewish Heritage (New York, NY)
  • Carmelo Parent Organization (Carmel, CA)
  • Carmen Friends of the Library Inc. (Carmen, OK)
  • Children's Christmas Store (Saginaw, MI)
  • Children's Circle of Hope Foundation (Mineola, NY)
  • Fairburn Community and Historical Society (Fairburn, SD)
  • Florida Pollution Control Association Inc. (Winter Park, FL)
  • Impact Children Foundation (Chicago, IL)
  • Animal Welfare Association (NJ)
  • Animal Friends (PA)
  • Angel Flight Central (MO)
  • American Hospice Foundation (DC)
  • Johns Hopkins University (MD)
  • Lance Armstrong Foundation (TX)
  • League for Animal Welfare (OH)
  • National Prostate Cancer Coalition (DC)
  • The Nature Conservancy (VA)
  • The Sierra Club Foundation (CA)

What About Donating Your Car?

Since the American Jobs Creation Act of 2004, there are new 2005 rules for donating your car to a charitable organization. First, the deduction you're allowed to take is limited to the price the charity is able to sell your car for. And second, you must get acknowledgement from the charity at the time of the sale to claim the deduction.

However, you may deduct the vehicle's fair market value instead if:

  • The charity uses the vehicle in the interim (such as using it to deliver meals on wheels).

  • The charity significantly improves the vehicle via major repairs (more than just painting or cleaning).

  • The charity sells or donates the vehicle to a needy person at a price significantly below market value in order to help that person.

How Much Can You Deduct?

While you can donate as much as you want, you cannot deduct unlimited amounts from your taxes. The amount you can deduct is high enough, though, that most people won't need to worry.

Generally, when you file your taxes, donations cannot be more than 50 percent of your adjusted gross income. There are some exceptions when, depending on what you donate and who you give it to, that limit is lowered to 20 percent or 30 percent.

If you do donate more than half of your adjusted gross income, you can carry those excess deductions over for up to five more tax years (the same limits will still apply to those years, though).

In order to claim any charitable deductions, you must itemize your deductions, not just claim the standard deduction (as most Americans do). The standard deductions are:

  • $4,850 for single or married filing separately taxpayers

  • $7,150 for heads of households

  • $9,700 for married couples who file joint returns

If you believe your deductions will exceed this amount, it's definitely worthwhile to take the time to itemize.

Which Organizations Are NOT Tax Deductible?

There are some types of donations that cannot be deducted. These include:

  • Donations to foreign organizations (a U.S. organization must have control of the funds to be deductible).

  • Contributions to specific individuals, political organizations and candidates.

  • The value of your time or services (while volunteering, etc.).

  • The cost of raffles, bingo or other games of chance.

  • Donations made to qualified organizations IF you expect to receive a financial or economic benefit equal to the contribution as a result.

While you cannot deduct the value of your time and services, you CAN deduct expenses incurred while doing so. For instance, if you volunteer at a homeless shelter and must take the bus to get there, you could deduct the bus fare.

There are many organizations out there, and with a little research you can determine the one that's best for you to give to. The Council of Better Business Bureaus recommends that a charity spend at least 50 percent of its total income on its programs. The Red Cross, for instance, says that at least 91 cents of every dollar donated for Hurricane Katrina goes directly to assist disaster victims.

To see how your favorite charity stacks up, or to find a new one, check out Charity Navigator or the Better Business Bureau for lists of top-rated charities across the country.

Recommended Reading

Spending Your Money on Doing Things vs. Owning Things Will Make You Happier

12 Signs it is REALLY Time to Leave Your Job


Internal Revenue Service

Charity Navigator

Bank Rate: New Law Extends Donation Deadline

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