Freelancer’s Guide to Charitable Tax Deductions - The Basics

You may have heard that you get a tax break for giving to charity - whether it’s cash, going to a fundraiser, or donating a garbage bag of old, raggedy clothes. For those of you that do your own taxes, have you ever wondered if you actually got any tax benefit from your gift-giving? Well, just because you gave a donation doesn’t mean you got money back from the Tax Man. Here’s a few of the basics of the charitable tax deduction.

The Need to Know

To understand your eligibility for the charitable deduction we need to take a step back and explain the standard deduction vs. itemized deductions. This is a very stripped down explanation but the idea is this: add up all the money you’ve made during the year. The IRS then says, before we start taxing everything we’re giving you two choices to make your tax bill lower: a) reduce your income by the annual amount (set by Congress), called the standard deduction, or b) Congress has made a list of personal expenses that, if they add up to more than the annual amount, you can take the sum of those expenses and subtract it from your earnings before the IRS starts taxing you. These expenses are the “itemized deductions.”

Now Here’s the Kicker 

The charitable deduction is an itemized deduction. So if you are someone that does not “itemize” but rather takes the standard deduction your tax bill is no smaller had you given to charity or not. Well, then who are people that “itemize?” Typically people that either have home mortgages, pay lots of state/city income tax, have extremely high medical bills or lots of unreimbursed business expenses "itemize" on their personal tax return. 

A few other important tidbits for tax savings:

  • Gifts must be given to IRS approved charities meaning the buck you gave the Showtime kids for not kicking you in the face doesn’t count.
  • Keep receipts of all gifts: cash, clothes, anything.
  • There is no tax deduction for your time given to a charity.
  • Exclude the value of anything received in return such as a gift, meal, drinks, etc. For ex. You spend $125/ticket for a gala and a $50 meal is served, your deduction is $75. Charities should tell you the value of what you received. 

Like most things in the tax world, there are limits and rules to everything the likes of which are beyond this blog. Before making a large contribution to a charity (cash, stocks, or other property) run it by your CPA to make sure you get the biggest bang for your buck.

Final thought: Conflicting reports say whether tax incentives really spur more charitable giving but it is surely a motivator to some. For whatever reason you choose to give it’s still important to report it correctly on your tax return. Happy giving!

Disclaimer - previous blog post disclaimers apply. Seek advice from your personal tax adviser.