The holiday season is one of the best times of the year to help those in need. Opportunities to help others seem to be around every corner. Holiday giving is great because everyone benefits from it. You have the opportunity to help people who need it and your donations are tax deductible.
What contributions are tax deductible?
There are many different ways you can give to charities during the holidays. The most common ways are through cash donations, gifts, service (a time donation.) When you “donate” your time it isn’t tax deductible, but you can deduct any mileage that you used. Cash donations and gifts are tax deductible; it’s best to keep a record of how much you gave, or the cash value of your gift, so that you can deduct it.
If you plan to claim your donations on your taxes, make sure you ask for a receipt from the charity you’re giving it to.
What organizations can I give to?
Before you make a donation to a charity you’ll want to do research and find out which charities are legitimate and how they use their funds. A good rule of thumb is to choose a charity that spends 20% or less on administrative costs. That means that 80% of the profits benefit the cause directly.
In order to get a tax deduction for your charitable donation you have to give to a charity on the IRS’ list of exempt organizations. The IRS states that the following are all qualified:
- A sate, local or national government or political party if made exclusively for public purposes;
- A community chest, corporation, trust, fund, or foundation, that is organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
- A church, synagogue, or other religious organization
- A war veterans’ organization
- A nonprofit volunteer fire company
- A civil defense organization
- A fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
- A nonprofit cemetery company if the funds are specifically dedicated to the care of the cemetery as a whole and not a particular lot or mausoleum crypt.
What do I count as personal donation vs. a business donation on my taxes?
As a small business owner, you should be sure to differentiate if you are making the donation on behalf of your company or from yourself. The biggest difference is where the funds come from.
Business donations should not come from your personal accounts. Make sure that you use money from your business accounts so that you can deduct it from your business taxes. There is generally more flexibility in what counts as a charitable contribution from businesses, but be sure to check with your accountant before you claim anything.
When you are ready to claim your donation on your taxes, have your accountant see if you will get more money through an itemized deduction the standard deduction. It can be more beneficial to claim the standard amount in some cases
While tax deductions are a great benefit to charitable giving, it shouldn’t be the only reason you give. Tony Robbins, a multimillionaire, life coach and author said, “Only those who have learned the power of sincere and selfless contribution experience life’s deepest joy: true fulfillment.”
FAQs: How to Give This Holiday Season
What contributions are tax deductible during the holiday season?
Tax-deductible contributions include cash donations, gifts, and certain expenses related to volunteer service, such as mileage. Keep a record of all donations and obtain receipts from the charities to claim these deductions on your taxes.
What types of organizations can I donate to for tax deductions?
You can donate to various organizations such as charities, religious organizations, war veterans’ organizations, nonprofit volunteer fire companies, and certain government or political entities. Ensure the charity is listed on the IRS’ list of exempt organizations to qualify for a tax deduction.
How do I differentiate between personal and business donations on my taxes?
Personal donations come from personal accounts and are deducted from personal taxes. Business donations should come from business accounts and are deducted from business taxes. Always use the appropriate account for the donation and consult with an accountant for accurate tax filing.
What should I consider when choosing a charity to donate to?
Research charities to ensure they are legitimate and effectively use their funds. A good rule of thumb is to select charities that spend 20% or less on administrative costs, meaning 80% of donations go directly to the cause. Verify the charity’s status on the IRS’ exempt organizations list.
Should tax deductions be the main reason for charitable giving?
While tax deductions are a benefit, the primary reason for giving should be to help others and make a positive impact. Sincere and selfless contributions bring deeper joy and fulfillment, as noted by Tony Robbins.
