There's no better way to get into the holiday spirit than giving back. During the holidays, an estimated 75 percent of Americans plan to donate to charity but what many don't realize is that they can turn their generosity into tax savings by claiming a variety of donations on their tax returns. Here's how to maximize your tax savings when you donate to a nonprofit charitable organization.
Keep proof of your gift. Hold on to your bank statement, cancelled check or credit-card receipts showing the amount of the donation. For gifts of cash or property worth more than $250, keep the written acknowledgement from the charity showing the date and value of the donation. If you donate property, jewelry, furniture or other treasures valued at more than $5,000, get an independent appraisal -- the IRS requires it.
Tax Tip: In order for your donation to be deductible, it must go to a nonprofit group that is approved by the IRS. Most often, these are charitable, religious or educational organizations, though they can also be everything from your local volunteer fire company to a group for the prevention of cruelty to animals. Churches with gross receipts of less than $5,000 per year may be exempt from this requirement. If you're not sure whether the group you want to help is approved by the IRS to receive tax-deductible donations, check online at IRS Search for Charities. This site allows you to enter the name and location of an organization and find out instantly if it qualifies.
Clothing or household items must be in good shape. Second-hand clothes and used goods must be in at least "good used condition." You can deduct only the fair market value. Taxpayers often underestimate their charitable deduction or lose track of donations they made earlier in the year and end up paying more in taxes. As a result, they either end up leaving out some tax deductions or they end up guessing, often valuing a bag of clothing at $50 when the actual value could be $300 or more.
Tax Tip: To calculate the IRS-approved value of your donations of things like used clothing, coffee makers, toys or bicycles, check out "ItsDeductible." This free app lets you track donations anytime, anywhere, year-round, to accurately value donated items and see estimates of your tax savings with every donation. You'd be surprised by how much these gifts can add up.
Donating vehicles. If the claimed value of your donated vehicle is more than $500, in most cases your deduction is limited to the amount the car is sold for at auction.
Tax Tip: The charity has 30 days after it sells your vehicle to issue you a Form 1098-C that shows details of the sale for your tax return.
Volunteer Services Count. Don't overlook the volunteer work you perform, which may also lead to a deduction. You can write off many out-of-pocket expenses you incur to do good work, including what you pay for materials, supplies, uniforms, stationery, stamps, parking and tolls.
Tax Tip: You can also deduct the cost of driving to and from your volunteer work, at a rate of 14 cents per mile as long as it's directly related to volunteering for a charity. If you take public transportation, that bus or rail fare is deductible, too.
For more tips on charitable deductions, visit Tax Break, the TurboTax blog.