When you make a charitable contribution to a non-profit organization, it is incredibly rewarding to know that you are supporting a cause in the community. Your spirit of giving is what enables organizations like the Arizona Friends of Foster Children Foundation to continue our efforts to help those who need it most.
For so many individuals that have donated to our organization, knowing that the contributions made a difference in a child’s life is wonderfully gratifying. But did you know that in addition to fulfilling your generous passion for giving back, your contributions to a charitable organization can also benefit you come tax time?
All you’ll need is a basic understanding of how to claim a deduction for charitable donations on your tax return, and you’ll be well on your way to making it even easier to donate cash, goods, or services to community organizations. In this post, we’re going to provide a helpful explanation of how to claim tax benefits from a charitable deduction. Once you’ve finished reading, you’ll be better prepared to navigate this tax year and enjoy the benefits of charitable giving in a new way.
What are Charitable Tax Deductions?
According to federal (and state) law, charitable contributions to 501(c)(3) public charities or private foundations can qualify you for an income tax charitable contribution deduction. Because each deduction serves to reduce your overall taxable income – and in turn, your tax rate – more deductions generally mean a decreased tax bill.
Deductions for charitable contributions offer an incentive for giving, making it possible for you to make the world a better place while also cutting your tax bill. For many individuals, donating to qualified charities becomes significantly easier on their finances once they learn about charitable deductions.
Tips for Claiming a Charitable Contribution Deduction on Your Taxes
If you currently donate to a qualified organization (or are planning to), it’s important to be well-informed before tackling the tax preparation process. Like any part of paying taxes, there are specific rules that must be followed in order to correctly claim your deduction. We encourage you to check with your professional tax advisor for advice on your personal tax situation and to learn how charitable giving to AFFCF may specifically benefit you.
Here are a few quick tips for claiming a tax deduction for contributions to qualified charitable organizations:
1. Keep in mind that you will most likely need to itemize your deductions.
When you file your taxes, you are given the option to either take the standard deduction or itemize deductions. Your donations will only impact how much you pay in taxes if you take the route of itemized deductions
Usually, you would choose to itemize only if you expect the total amount of your combined deductions to exceed the standard deduction (see below). If not, taking the standard deduction is typically recommended.
For the 2021 tax year, the standard deductions are as follows:
- Single: $12,500
- Married filing jointly: $25,100
- Head of household: $18,800
Be sure to carefully track all contributions during the year to have a clear idea of the best option for you. If you are unsure about how to calculate tax deductions, consider hiring a tax preparation professional or using high-quality tax software for assistance.
Note: For 2020 taxes, there are additional benefits available specifically for cash contributions. The annual cash donation cap has been raised for the 2020 tax year, and if you do not choose itemized deductions, you can still deduct up to $300 in cash donations (in addition to claiming the standard deduction). This change is the result of the CARES Act, with additional details available on the IRS website.
2. Be aware of the donation limits for deductions.
The Internal Revenue Service (IRS) enforces specific limitations on the total dollar amount you can claim for your deduction for contributions to charity. In most cases, taxpayers can only deduct a specific percentage of their adjusted gross income (AGI) in the form of an itemized deduction for cash donations. Typically, the deduction is limited to 60% of the individual’s AGI.
Certain qualified contributions do not fall under this limitation. For more information about how the limits for charitable donation deductions may affect your tax filing, please consult a tax professional.
Note: The IRS has temporarily suspended the limits on charitable contributions as part of the CARES Act.
3. Be prepared with the proper information and documentation for your donations when filing your tax return.
As you would expect, tax law outlines a few simple rules for claiming a tax-deductible donation. These rules are implemented in an effort to reduce fraud while still encouraging donations to the qualifying charity of your choice
Here are the basic steps you’ll need to follow in order to claim your charitable deduction:
- First, make sure that the charity you are contributing to is a qualifying non-profit organization. It must either be a private foundation or a 501(c)(3) public charity. These details should be readily available on the organization’s website or openly provided when you inquire about making a donation.
- Keep a record of your donation. Typically, the recipient organization will provide a tax receipt or some other form of documentation for tax purposes. Each contribution of more than $250 (in cash or property donations) is required to have a written acknowledgment from the recipient charity, outlining the total donation amount, whether the contributor received goods or services in return and the fair market value of any goods/services provided.
- For certain types of non-cash donations, such as real estate, you may need to get a qualified appraisal to determine fair market value.
- When you file your taxes, have your paperwork on hand. You can expect to enter specific dollar amounts and other details.
4. Stay on top of changing tax laws each year.
In some cases, there may be small changes made to specific tax regulations. As a result, it is important that you are informed of the most current tax information (and the tax implications of any adjustments). The Internal Revenue Service (IRS) provides up-to-date information on the charitable contribution deduction rules on their website, and you can also check with a tax preparation professional.
Don’t Forget the AZ Foster Care Tax Credit!
In addition to a tax deduction, making a contribution to Qualifying Foster Care Charitable Organizations (QFCO) (such as the Arizona Friends of Foster Children) can help you earn an individual income tax credit. When you donate to a QFCO that supports the immediate basic needs of at least 200 qualifying AZ residents within the foster care system (in addition to other provisions), you can claim the AZ Foster Care Tax Credit using Form 352.
Married joint filers may claim up to $1,000, while single, head of households, and married separate filers can claim up to $500.
Make a Tax-Deductible Donation that Changes the Lives of Children in Foster Care Today
Now that you are armed with a wealth of information about how to claim charitable deductions on your future tax returns, there’s never been a better time to contribute. The potential tax savings make it easier than ever to give back to the community, allowing even more people to share their generosity with those in need.
The Arizona Friends of Foster Children Foundation is a 501(c)(3) nonprofit organization (Tax ID: #86-468850), meaning that your gift to us can qualify you for a tax deduction. Not only will your contribution go directly towards helping children in the Arizona foster care system, but it will also benefit you at tax time.
Make a tax-deductible contribution to Arizona Friends of Foster Children and play a part in improving the lives of Arizona’s children in foster care today.