Is christmas miracle tax-deductible? How to combine charity with tax accounting

tax accounting

Here it comes again – the season of holiday spirit, winter magic and good deeds.

Charity fairs and sales are taking place nearly every day, soup kitchens are as active as ever, and volunteers are calling out for participation for charities and other various good causes.

Of course, we’re all eager to participate, but don’t forget that straight after the season of holiday miracles is another season – the tax season.

So here we’ve decided to give you some tips on how you can do good things now and not be sorry for them later when filing your taxes:


Choose carefully

If you plan to donate (money, clothes, food or whatever else), the first thing you want to do is check the status of the charitable organization.

If the organization is well qualified and already has a good record of charitable activities, it can easily be found directly on the IRS website. Once there, use their online search tool called TEOS – Tax Exempt Organization Search.

Moreover, according to IRS disclosure regulations, all tax-exempt organizations must make their three most recent 990, 990-PF and 990-T forms publicly available. In other words, they’ll most likely be published directly on the websites of the organizations.

You can also access these forms on websites like 990 Finder and Nonprofit Explorer.

Definitely tax-exempt are all religious organizations, such as churches, synagogues and mosques.

Definitely NOT tax-exempt will be any sort of donations to private individuals (as opposed to organizations), political parties, political campaigns or foreign organizations.


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Make sure you have proof of your donations

Schedule A (Form 1040) differentiates between gifts by cash or check and other forms of gifts.

If your generosity goes beyond $500, you will additionally need to fill out Form 8283.

Regardless of the amount, it has to be confirmed by a bank record or a receipt. If you have made a text donation via SMS, your cell phone bill will be considered completely legitimate confirmation.

In any of these cases, the writing must include the following information: the date of donation, the exact amount and which organization received it (once again, the recipient must be an organization, NOT a private individual, even if this individual is the head or the accountant of a charitable organization).

You don’t have to attach all these bank records or receipts to your tax forms when filing. However, they should be kept ready in case of a tax audit.


Know the tax rules for volunteering

During the winter holiday season many people are eager to help not only with their money, but also with their time, work and creativity.

Such charitable activities are also subject to tax deductions!

But you need to keep the following in mind:

The bad news – you can’t deduct the value of your time spent on volunteering. It doesn’t matter what you’re doing and how professional you consider the volunteering contribution. You could be serving soup or be creating an app for a charitable fund – the tax deduction amount for your kind services will still be zero.

Now the good news! All out-of-pocket expenses related to your volunteering activities, including their preparation and travel ARE tax deductible. This includes parking fees, toll fees, tickets for public transport, buying special uniforms or holiday costumes, supplies, stationery etc.

Keep in mind though that for 2018 the rate of mileage compensated as service provided for a charitable organization is only 14 cents per mile. Which means using a 4×4 pickup for volunteer commuting might not be the best idea.


Make it this year

Even though taxes are due in April, to be treated as tax-deductible, charitable contributions need to be made by the end of this year. That is – by December 31.

If you’re planning to wire your donation via a bank, it’s better to not keep it till the last day. That’s because the transaction might get stuck due to technical reasons, and then the payment might end up getting wired in January 2019.

Note that an announcement of readiness to make a donation (your SMS or email to a charitable organization, for example) cannot be tax deductible unless it’s backed by an actual payment.


Beware of the most recent changes

The tax reform of 2018 didn’t change much in terms of charitable donations, gifts or other related deductions. The tax forms have remained the same, just like the deadlines.

However, there are two updates which are minor – but important:

  • The percentage limit for charitable cash donations by individual taxpayers to public charities has been increased from 50% to 60% (of adjusted gross income);
  • You need to make sure that you’re not getting anything in exchange as a gift! For example, if you’ve donated $50 to a local lacrosse team, and then got a “free” ticket or a T-shirt with their logo in exchange, your donation cannot be subject to a tax deduction.

You can find a Schedule A (Form 1040), Form 8283 (or actually any other tax form you need for the upcoming season) in the PDFfiller Tax Form Catalogue.