Donating to a charitable foundation or cause is a rewarding way to support your community, particularly during the current Black Lives Matter movement. Donations also lower your taxable income and increase your tax refund as well.
If you’re eager to make a charitable donation, make sure you follow these three tips to choose a foundation that truly deserves your hard-earned money.
A Quick Introduction to Charitable Donations
A charitable donation, also known as a charitable contribution, is a financial gift or material donation given to an organization qualified as tax-exempt by the IRS. This means your donations don’t have to be cold, hard cash. Here are a few other examples of charitable donations:
- Car expenses like oil, gas, parking, and tolls incurred while supporting a qualified organization
- Clothing and household items donated to a qualified charity
The list of items that are not deductible is a bit longer. You can’t deduct contributions to specific individuals, non-qualified organizations, your time, or personal expenses. The IRS also imposes limits to your generosity. Depending on the type of charity you select, you’re capped at contributing either 30% or 60% of your adjusted gross income.
Tip 1: Research the Charity
Don’t give away your money blindly. It’s important to donate your money to a charity with a mission that you believe matters.
Start by researching exactly how charities spend their donations. In particular, learn about how much of each organization’s expenses go to program expenses compared to administrative costs and fundraising efforts. It’s best to select a charity that diverts the majority of its donations to their core mission, rather than the upkeep of their own institution.
It’s also important to understand the mission of the charity you select. Some charities have clever names and inspiring mottos, but their missions and actions don’t always meet expectations or achieve efficiency. Make sure you invest your hard-earned money into a charity that will achieve real changes with the help of your donation.
Tip 2: Follow the Money
If you give money blindly, you’re more likely to donate to a group that passes your investment along to inefficient charities. This means that you risk 50% (or more!) of your investment being spent on costs other than the core charity missions themselves.
For example, if you donate $500 to a disabled veteran’s charity, you want as much of that $500 as possible to directly improve the lives of disabled veterans. How would you feel if only $275 made it that far? This is why it’s so important to learn as much as possible about your selected charities and understand the final destinations of the contributions they receive.
Tip 3: Invest, Don’t Just Donate
Donating to a charity is rewarding on a personal level, but it can also help you during tax time as well!
Tax-deductible donations reduce your taxable income, thereby reducing the amount of taxes you need to pay into the government.
You can usually deduct up to 60% of your adjusted gross income through charitable donations, but certain types of contributions are limited to 20%, 30%, or 50% instead. When tax time rolls around, itemize your deductions to claim tax-deductible donations to charity by filling out a Schedule A form.
Since your charitable donations are only tax-deductible through qualifying organizations, be sure to donate to tax-exempt organizations as defined by section 501(c)(3) of the Internal Revenue Code. The IRS’s Tax Exempt Organization Search tool makes it easier than ever to get the information you need and devote your money to the right causes.
