The giving season is upon us. Because of the holidays and end-of-year tax planning, the final weeks of the year are always a peak time for charitable giving. If you’re like many, December is the month in which you open your wallet and provide financial support for your favorite causes.
While your primary goal may be to help your chosen cause, you probably also want to take advantage of potential tax deductions. The IRS encourages charitable giving by allowing you to deduct your gifts on your tax return.
However, it’s possible that your contribution may not be deductible. It’s also possible that your gift may not end up being used for its intended purpose. A little advanced planning can help you avoid these risks. Below are a few tips to consider before you make your charitable gifts this holiday season:
Make sure the charity is registered.
In many states, charities must be registered to take tax-deductible donations. The actual process for registration depends on the state. You may want to check with your secretary of state or Department of Justice office. Most offer a searchable database to look for charity information.
Also, the charity must be registered with the IRS as a nonprofit. The organization should be able to provide a receipt that includes its nonprofit tax ID number. The IRS can also verify whether a charity is eligible for tax-deductible donations.
If you donate to a charity that isn’t registered and then deduct that contribution on your taxes, you may have to pay fees and interest after the IRS catches the error. You can avoid that by doing a little homework on your given charity.
Include your volunteering expenses.
You can’t deduct volunteer hours or donated labor, but you can deduct expenses that you’ve faced during your volunteer work. For example, you may have used your own money to buy supplies, food or other goods for the charity. Perhaps you’ve paid out of pocket for printing, copies or other administrative services. Those expenses are tax-deductible.
Mileage is also deductible. As long as the trip was strictly for volunteering and charitable purposes, you can deduct the mileage at the IRS standard mileage rate. Keep track of your mileage for any volunteering you do this holiday season.
If you plan on deducting expenses, be sure to hang on to your receipts. Also, try not to mix personal spending with charitable spending. You want receipts that show only your deducted expenses in the event that the IRS has questions.
Research your charity’s track record.
While it’s always nice to get a tax deduction, that’s probably not your primary reason for giving. You likely want to see your gift help others. For that to happen, though, you need to be sure your gift will actually be put to good use.
Unfortunately, many charities have bloated administrative structures. After the charity pays for office staff, marketing and other overhead expenses, little of the remainder actually goes toward the intended charitable purpose.
You can use online tools like Charity Navigator to research the organization and see how much of its money is used for charitable causes. If your charity doesn’t have a good rating, you could ask for more information from the organization’s leadership, or you may be able to find a better charity that benefits the same cause.
Need help planning your charitable giving this year? Let’s talk about it. Contact us at Lighthouse Financial for more information. We can help you analyze your goals and develop a plan. Let’s connect today.
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