Financial Word of the Week: Charitable Deductions
Last week we went over what a tax deduction is. This week we’ll focus specifically on the deduction for making charitable donations.
If there are specific charities that you’re passionate about and want to help, the first step is to confirm that they are qualified to receive tax-deductible contributions before you give them anything. Ask them to send you their IRS letter recognizing their tax-exempt status. You can also call the IRS directly (toll-free) at 1-877-829-5500 or visit the IRS website to confirm an organization’s status.
Once you have confirmed their status, you need to keep track of all your donations to that organization. The best way is to ask for a receipt every time you donate cash or property.
Some things to keep in mind:
- You cannot deduct contributions to specific individuals or families. Even if you give money to a qualified charity, you may not specify someone to receive the benefit.
- There are limits to how much you can deduct. Generally, you may not deduct more than 50% of your Adjusted Gross Income (AGI). For example, if your AGI is $30,000 and you contribute $20,000 in cash to a qualified charity, your deduction will be limited to $15,000. If your income is above a certain threshold, the amount you can deduct may be reduced.
- If you volunteer for a qualified organization, some unreimbursed, out-of-pocket expenses may be deductible as well. A deduction of this type might include mileage for driving to and from the volunteer location. However you may not deduct the value of your time, such as income you lost because you were volunteering instead of working.
For more information on Charitable Contributions, see IRS Publication 526‡.
*This post is not meant to replace the advice of a tax professional.
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UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.