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Giving gifts and being charitable is something that businesses generally do during the holiday season. Volunteering of your time is also high on the list of charitable activities. In addition to making life better for the people you are donating to, both of these activities can help reduce your tax liability for the year!
Choose Your Charity Wisely
Don’t rush into choosing a charity. Make sure that you pick a tax exempt group to help. Any 501(c)(3) is fine. Donations to political candidates or individuals don’t fall into the tax deductible category. Either donate to a well known national charity or one that is well known in your community. That way when you publicize it people will know what you are talking about.
Take Copious Records
If your donation will be used on your taxes for deductions you have to have superb documentation of it. That means you’ll need to record things like the contact information for the charity, the date and amount of your donation (time donations included), and any special notes you wish to include like what the donation was going to be used for. This information can be included when you itemize your 1040 deductions to serve as supporting documentation.
Calculating Claim Amounts
One of the sticky situations with charitable donations is that sometimes you receive something back from the recipient. If you do, you must deduct the amount of the gift you receive back from the charity. For example, if you donate $500 to a local food bank and they send you a thank you fruit basket that would normally retail for $30, you must count this against your donation. Your claimable amount would then be $470 ($500-$30).
If you donated an item to a charity auction, the amount of deduction you can take is not the retail value of the item, but the value it received at auction. However, it cannot exceed the original value the object appraised at. So if you had an item appraised at $300 and it sold for $500, you can only claim the $300.
If you attend a charity dinner where the minimum charge per plate is $50 and you give $250, you can claim the extra $200 as a charitable donation.
Make Sure to Get a Receipt
You need a receipt for every donation that you make. It can be in the form of a bank statement, a pay check statement or a written receipt from the charity itself, so long as it clearly states the amount of the donation. If your donation is over $5,000 you’ll have to fill out Form 8283 Section B on your taxes. If you are donating an object of significant value, you will need it to be appraised by a licensed appraiser.
Volunteering Can be Deducted
If you decide to give your time instead of a monetary or physical gift, you can deduct for the time it takes you to travel to and from the volunteer location, the amount you spent on any necessary clothing for the volunteer work (uniform, special shoes, aprons, etc.), any advertising you pay for for the charity, and any supplies that you purchased specifically for the volunteering event. You may not, however, deduct an hourly wage. If you aren’t sure what can be deducted, check with your local tax authority.
Post Your Recognition!
Don’t forget to get the most out of your charitable donation by posting a clip of it in your office. This is the type of thing that gives you some positive press in the community especially if you are donating to a particularly well liked local organization.