Did you know that only 26% of taxpayers itemize charitable deductions on their tax returns? If you made a donation—whether cash or non-cash—to an eligible non-profit organization, then you’re qualified for a break on last year’s taxes. Even better, because charitable giving becomes a tax deduction before your taxed income, you can possibly lower your overall taxable income and enter a lower tax bracket.
Not sure where to begin? Here’s everything you need to know about hacking your charity tax deductions:
Donate to the Right Places
If there’s one thing to do before you start filling out tax forms (and even before donating), it’s to make sure you’re donating to the right places. Keep in mind that only qualified organizations are eligible for tax deductions. For instance, donating cash or items to family members does not count. And just because a group is a non-profit doesn’t mean that it’s eligible! Fortunately, if you donate your gently used items to a Goodwill donation center, rest assured that your charitable giving will be tax deductible.
Don’t Forget Your Receipt (or Signature!)
Any time you make a charitable donation, it’s recommended that you keep record of it. When you drop off your used clothing, furniture or other goods to a Goodwill center, make sure to say “yes” when a staff member asks you if you’d like a receipt. It’s also important to know that there are separate requirements needed to prove your donations. Depending on the fair market value of the item you’ve donated, you’ll need to provide a receipt as well as documentation if that amount exceeds $250. Learn more about additional tax requirements for Goodwill donations here.
Be Aware of Charitable Deduction Limits
If you’re receiving anything in return for your donation (like food or merchandise), you must only deduct the amount you pay over the value of the item. For instance, let’s say you attend a charity luncheon and donate $100. Because there was a meal provided you must deduct the actual value of the food ($10) from the amount you donated ($100). In this case, $90 can be written off.
It’s also important to understand that you can only claim deductions on up to 50% of your income. So, if you made $40,000 last year and donated $25,000 to an organization, you can only claim $20,000 in deductions. However, keep in mind that you can roll over additional deductions into the next tax year (restrictions apply, of course).
You Can Receive a Dollar-for-Dollar Tax Credit
Direct your Charitable Tax Credit dollars to Goodwill of Central and Northern Arizona and receive a dollar-for-dollar tax credit on your Arizona state income tax return. Anyone who pays Arizona state income tax may be eligible for the tax credit. For example, if you owe $800 in state income tax and you donate $400 to Goodwill, you may subtract the donated $400 from your tax bill and pay the state the remaining balance. A tax advisor can provide more information.
Ready to potentially enter into a lower tax bracket? Start by donating your gently used items to the closest Goodwill donation center near you.
