The following is a brief summary of certain federal income tax laws
for informational purposes only. We urge you to consult your tax advisor
for the federal, state, and local tax consequences of a charitable
contribution.
Benefits to You of Giving to Charity
While we believe at Charity Navigator that your primary motivation to
donate to charity should be altruism, we also think you should know that
great tax benefits exist for those who give. Here are some of the
benefits you should know about.
A gift to a qualified charitable organization may
entitle you to a charitable contribution deduction against your
income tax if you itemize deductions. If the gifts are
deductible, the actual cost of the donation is reduced by your tax
savings. For example, if you are in the 33% tax bracket, the actual
cost of a $100 donation is only $67 ($100 less the $33 tax savings).
As your income tax bracket increases, the real cost of your
charitable gift decreases, making contributions more attractive for
those in higher brackets. The actual cost to a person in the lowest
bracket, 15%, for a $100 contribution is $85. For a person in the
highest bracket, 35%, the actual cost is only $65. Not only can the
wealthy afford to give more, but they receive a larger reward for
giving.
A contribution to a qualified charity is deductible in
the year in which it is paid. Putting the check in the mail
to the charity constitutes payment. A contribution made on a credit
card is deductible in the year it is charged to your credit card,
even if payment to the credit card company is made in a later year.
Most, but not all, charitable organizations qualify for
a charitable contribution deduction. You can deduct
contributions only if they are made to or for the use of a qualified
recipient. No charitable contribution deduction is allowed for gifts
to certain other kinds of organizations, even if those organizations
are exempt from income tax. Contributions to foreign governments,
foreign charities, and certain private foundations similarly are not
deductible. Below, you can view a list of organizations for which
your donations can be deducted. All organizations rated by Charity
Navigator qualify for charitable status, and you can deduct your
donations, subject to certain limitations.
An organization could lose its charity status if it devotes a
substantial part of its activities to formulating propaganda or
otherwise trying to influence legislation. However, an organization,
other than a church, may qualify as a charity and still perform some
of these activities by keeping its political expenditures to an
"insubstantial" part of its activities. Furthermore, donations to
needy individuals are not deductible.
There are limits to how much you can deduct, but they're
very high. For most people, the limits on charitable
contributions don't apply. Only if you contribute more than 20% of
your adjusted gross income to charity is it necessary to be
concerned about donation limits. If the contribution is made to a
public charity, the deduction is limited to 50% of your contribution
base. For example, if you have an adjusted gross income of $100,000,
your deduction limit for that year is $50,000.
The rules on 20% limits and 30% limits are way too complicated to
delve into in this space. If you are giving to organizations other
than those mentioned above, first consult with your tax adviser to
determine whether these other ceilings will apply. If you give an
amount in excess of the applicable limitation to charity in one
year, the excess is carried over for the next five years.
Rules exist for non-cash donations. If you
contribute property owned for more than one year, the value of the
deduction is normally equal to the property's fair market value. You
have an advantage when you contribute appreciated property because
you get a deduction for the full fair market value of the property.
You are not taxed on any of the appreciation, so, in effect, you
receive a deduction for an amount that you never reported as income.
You should clearly contribute, rather than throw out, old clothes,
furniture and equipment that you no longer use. If you bring $1,000
in old clothes or furniture to Goodwill or the
Salvation Army, make sure that you get a receipt. Never throw
such contributions into a bin where no receipt is available. If you
are in the 25% bracket, that receipt may be worth $250 in tax
savings to you.
Remember to document. No deduction is allowed
for a separate contribution of $250 or more unless you have a
written confirmation from the charity. A canceled check alone is not
enough. If the contribution is to a religious organization solely
for an intangible religious benefit (annual dues, for example)
written proof is still required. All other contributions of cash
require the charity to estimate the fair market value of any goods
or services given to you in exchange for your contribution.
Remember, it's always better to give than receive. The glory of
charitable donations is that you give and receive at the same time.
Organizations to Which You Can Give and Deduct Your Donation
Your contribution to every organization that Charity Navigator
evaluates is tax deductible. If an organization is not evaluated by
Charity Navigator, and you still want to support them, you are generally
allowed a 50 percent ceiling on your adjusted gross income for
contributions if they are any of the following organizations:
Churches and other religious organizations;
Tax exempt educational organizations;
Tax exempt hospitals and certain medical research organizations;
A government unit, such as a state or a political subdivision of
a state;
Publicly supported organizations such as a community chest;
Certain private foundations that distribute all contributions
they receive to public charities within two-and-a-half months after
the end of the foundation's fiscal year;
A private operating foundation which pools all of its donations
in a common fund;
Certain membership organizations that rely on the general public
for more than a third of their contributions.
