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Tax Strategies & Credits

What You Need to Know About Year-End Charitable Giving & Volunteering

by
Bret Willoughby
on
12/25/2016
What You Need to Know About Year-End Charitable Giving & Volunteering

It's that time of year again: the season for giving as well as thinking about last-minute things you can do at the end of the year to take the edge off of your impending tax bill. Donating to causes that you care about can be a great way to reduce your tax bill, but there are certain steps you need to take to make sure you get the full benefit.

Donations must be made to a qualified charity to be deductible.

Typically, this means the organization must be a qualified 501(c)(3) charity. 501(c)(3) status applies to most schools, charitable organizations, fraternal lodges, houses of worship, non-profit hospitals, and other organizations that offer an educational or public benefit. Contributions and dues for civic organizations and social clubs are not deductible, the same is true for contributions to political candidates and political action committees.

This also means that gifts you make to individuals, like helping a homeless person or giving to a friend's crowdfunding campaign for medical bills, are kind and thoughtful acts but unfortunately won't have an impact on your tax bill.

Unfortunately, charity scams are also plentiful during the holiday season. If you are unsure whether a charity is legitimate after doing research, you should check the IRS Select Check database before writing a check.

Donations made by credit card still count for 2016.

Even if you don't pay your credit card bill until well into 2017, your donation still counts for tax purposes if you make it while it's still 2016 and have proof of it like an email receipt.

If you're donating non-cash goods, you need to have a good idea of your donation's value and in some cases, a written appraisal.

Cash isn't the only way to help out charities you support. You can deduct the approximate market value of the goods you're donating and this can be tricky to figure out. If you just purchased a toy for a toy drive, the amount you paid would be your deduction. But if you're donating to charity thrift shops upon cleaning out your closet, you need to be careful not to over-value your donation. Most thrift shops have online guides with their average sales prices to help you determine the value of your donation. If you are donating items in new or vintage condition, looking at completed sales on auction sites like eBay can help you with valuation.

For highly valuable donations like jewelry, collectibles, and art you should have these items appraised. The appraisal fee is deductible regardless of whether it is required or not (it is required for any donation with value exceeding $5,000.)

If you are shipping your donated goods to the charity, your shipping costs are deductible.

You can deduct personal expenses for volunteering, but not the value of your time.

Volunteering is a rewarding way to spend the holidays and you can even get some write-offs for volunteer work. Any personal expenses that the organization does not reimburse you for are deductible if they are related to volunteer work. This would include uniforms, supplies, equipment rental, and travel. If you are traveling to do volunteer work, you can deduct the actual cost of public transportation, airfare, and taxis or $0.14/mile if driving.

The volunteer work must be for a qualified charity and any benefits (ie, business networking) must be incidental. You still should receive a receipt acknowledging the gift.

However, you don't get a deduction for the value of your time if you donate your services to a charity. For example, if you are an attorney who charges $400/hour and you donate three hours of your services to draft a trust agreement for a charity you support, while this may be a generous act, there is no $1,200 deduction for the value of your time. The only deductible expenses would be the unreimbursed expenses incurred to do the work, such as administrative filing fees and postage.

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Bret Willoughby

Bret Willoughby

Bret Willoughby is a practicing tax preparer for expats throughout the world. He created Providence Payroll to meet the needs of Churches, not-for-profit organizations and businesses with remote workers. His web-based payroll processing service benefits both employers and remote workers with an easy way to access payroll information. Clergy have unique payroll and tax-related issues, one that Providence Payroll is qualified to manage.

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