Charitable Tax Deductions- What they are and how they work

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Hard working organizations such as the Meals on Wheels People depend on monetary contributions to improve the lives of vulnerable populations. Many of these non-profit organizations are tax-exempt organizations, which means a monetary donor is eligible to apply their donation to a charitable tax deduction at the end of the year. We will do quick breakdown and overview of charitable tax deductions. This way as a potential monetary volunteer you have the knowledge to move forward with helping your community!

What is a tax deduction? 
A tax deduction is an amount that you subtract from your income before your income is considered for taxable earnings. The CS Monitor provides a simplified example of a tax deduction in practice. In this example person X makes a total of $9,000 in charitable donations during the year. This person makes a yearly salary of $50,000. At tax time they would subtract their charitable donations from their income ($50,000-$9,000) which brings their taxable federal income down to $41,000. This deduction results in person X paying less in income tax because their taxable income is lower.

What constitutes a charitable tax deduction? 
In clarifying what it means to make a legitimate charitable tax deduction, the IRS specifies that you must be making donations to a "qualified organization". A qualified organization is an organization, such as The Meals on Wheels People, that is considered under the law to be a 501(c)3 tax-exempt organization. This legal exemption status makes your donation 100% tax deductible.

What paperwork do you need to file charitable contribution as a tax deduction?
On their "Tips for Deducting Charitable Contributions" the IRS explains that "written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution" is required to successfully "file Form 1040 and itemize deductions on Schedule A". In their "FAQs for donors to Meals on Wheels" they explain that after your monetary donation they will provide you with a receipt that you need to save and present to your accountant when filing your end of year taxes.

- Rachel Hill
Resources:
Hamm, T. (2011, December 19). How much will charity help your tax bill? Retrieved December 01, 2017, from https://www.csmonitor.com/Business/The-Simple-Dollar/2011/1219/How-much-will-charity-help-your-tax-bill

Eight Tips for Deducting Charitable Contributions. (n.d.). Retrieved December 01, 2017, from https://www.irs.gov/newsroom/eight-tips-for-deducting-charitable-contributions


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