If you think your tax deduction for charitable contributions ends when you write a check to your church or drop off that box of clothing at the Salvation Army, think again. You may be cheating yourself.
The IRS allows several different ways to take tax advantage of your goodwill.
Driving home deductions
Volunteer work itself does not produce a tax deduction. However, your travel expenses getting to and from the volunteer location are deductible. If you use your car to help out once you get there — for example, delivering food to the needy for your church — that counts, too.
You can take a standard deduction of 14 cents per mile on your tax return. Or, if it’s more advantageous and you kept track, you can deduct the actual cost of your gas for your philanthropic driving. With either choice, you also can include any parking fees or tolls paid.
If you pay for some of a qualified organization’s expenses and aren’t reimbursed, these costs can count as charitable deductions. This might be buying stamps for a group’s mailings or purchasing office supplies for the organization’s administrative operations.
If your volunteer work requires you to wear a uniform — say, as a Red Cross hospital aide — the cost of the clothing and of keeping it clean are deductible.
Student lodging can mean a tax break
Did a student live with you last year? If you meet all 3 parts of a 3-part test, you might be able to deduct some expenses associated with that boarder, either a foreign or American student.
You meet the test if the student:
- Is not your dependent or relative.
- Is a full-time student in the 12th grade or lower at a U.S. school.
- Lives in your home under a formal agreement with a qualified organization to provide educational opportunities for the student.
You can deduct up to $50 per month for each full calendar month the student lives with you. The IRS even eases the definition of a month in these cases. When a student meets the 3 conditions above for 15 or more days, that counts as a full month.
Gifts of appreciated property
You also can give appreciated assets, enabling you to avoid paying capital gains taxes while simultaneously getting a tax deduction. This tax move is most beneficial if you donate stock you’ve owned for more than a year and its value has increased substantially.
If you sell the appreciated stock, you could face paying taxes at the 15% long-term capital gains rate on your profit (20% for certain high earners with adjusted gross incomes in 2015 of $413,201 or more for single taxpayers, and $464,851 or more for married joint filers). Even if you give the cash you make from the sale to a charity, you’ll still have to pay the taxes. But if you give the stock directly to the qualified organization, you can claim a deduction for the full asset price at the time you donated it and escape the capital gains tax bill.
For example, if you bought 100 shares of stock several years ago for $5 per share and it was selling for $10 per share when you donated it to a charity, you can claim the full appreciated value of $1,000 as a charitable deduction. Remember, this valuation applies to long-term holdings. If you owned the stock for a year or less, you could deduct only what you originally paid for the asset — $500 in this case.
A growing number of charitable groups have established programs to accept gifts of appreciated property. Check with your favorite charity to see if it can help you through this donation process.
Ease your tax bill, help your country
If you’re feeling particularly patriotic, you can help reduce the country’s public debt along with your tax bill.
The Treasury regularly borrows money by selling Treasury securities such as T-bills, notes, bonds and savings bonds to the public. This public debt helps raise cash to keep the U.S. government operating. Any contribution you make to reduce the national debt burden is deductible as a charitable contribution on your tax return for the year in which you make it.
You should make the payment as a separate check payable to Bureau of the Public Debt and send it to: Bureau of Fiscal Service, Department G, P.O. Box 2188, Parkersburg, WV 26106-2188. If you prefer, you can save a stamp and stick the check in your tax return envelope.
Same donation rules apply
Although some of these charitable donations are not commonly taken, tax rules still apply.
To be deductible, contributions must be made to qualified organizations. Ask the group if it meets IRS guidelines. Most will be able to tell you. Or you can check online for the IRS’ exempt organizations eligible to receive tax-deductible contributions. You also can call the IRS at (800) 829-1040, TTY/TDD connection at (800) 829-4059, to find out if an organization meets IRS charitable standards.
You now need documentation, such as a bank or charge card statement or a canceled check, for all monetary gifts. If your gift is worth $250 or more, you must get an official receipt from the organization before you can claim the deduction.
Don’t get greedy
While Uncle Sam is pretty flexible about letting you write off your good works, don’t go overboard. There are some things the IRS says it won’t allow.
Good deeds the IRS won’t let you write off include:
- Contributions to a specific individual, regardless of the person’s neediness.
- Contributions to a group created to lobby for law changes.
- The value of your time or services, such as the income you forfeited to work as an unpaid volunteer.
- Your personal expenses. For example, the cost of meals while you’re volunteering.
- Appraisal fees to determine the value of donated property.
- Contributions to homeowners associations, social or sport clubs, civic leagues or chambers of commerce.
If you made any of the other little-known but IRS-approved contributions last year, be sure to count them when you file your return. And if your largesse came Jan. 1 or later, start a deductible contributions file now so you’ll have the information at your fingertips when you file your taxes next year.
More details about tax deductions for charitable contributions are found in IRS Publication 526, Charitable Contributions, and Publication 561, Determining the Value of Donated Property.