What You Need to Know About Tax Deductible Donations

Statistics indicate that three out of 10 of our neighbors survive on an income that barely covers rent and necessities. You can make a difference in people’s lives by donating to qualifying tax-deductible charities. Here are the top five things you need to know.

Arizona Tax Deductible Donations

Arizona Tax Credit provides dollar-for-dollar for charitable donations. Formerly known as Working Poor Tax Credit, it has a limit of $400 for individuals and heads of households. Married couples contributing to qualifying tax deductible charities can get a credit of $800.

You can make small contributions throughout the year to a food box or working poor charities. The sum of those contributions will be deducted at the end of the financial year as long as it is within the limits.

What Qualifies As a Donation?

There are several misconceptions about donations and tax credits. Many people tend to overlook that not all organizations that contribute to charity qualify as tax deductible charities. Nonprofits must register under section 501(c)(3).

It is also worth noting that not every nonprofit can qualify for either state or tax credit federal deductions. Organizations in sports and civic and social welfare are under the nonprofit section, but they are not eligible.

Charitable Gifts That Do Not Qualify

There are also certain types of gifts that do not qualify under charitable donations despite misconception. For example, if you were to organize fundraising for a friend, you will not be eligible for deductibles. It must be an organization registered as a nonprofit or one working under an umbrella organization.

Another issue with personal gifts is that they don’t qualify if they benefit you. Some examples may include the cost of books sold at a fundraiser or transport costs to an event. The price of the products you give to charity must also correspond to prevailing market rates.

The Issue of Earmarking

You cannot make tax credit federal deductions to an individual through a qualifying nonprofit. The donations given to a specific individual are considered to be gifts channeled through the organization. The principle of discretion stipulates that the charity must have the power to use the donation without the donor’s consent.

There are some limitations to the earmarking rule. The IRS may consider the intent of the organization when determining if the donation is deductible. For example, donating to a scholarship program qualifies and is not a case of earmarking.

Limits to Tax Deductible Donations

It is possible to qualify for tax deductibles if the worthy cause is outside the country. However, the nonprofit has to be registered in the United States.

You can also donate to crowdfunding causes as long as it is not an individual, a product, or a business. However, it is worth noting that promising to give something in the future does not amount to a donation. You can only get a credit for the contributions you make to tax deductible charities.

Before you can send your contributions, ensure that the organization is a nonprofit under section 501(c)(3). Keep your documentation in order, as you may need it when claiming credits for your donations.