One of the ways the IRS encourages taxpayers to support worthy causes is by allowing tax deductions on income donated to charity. This lessens the financial burden during tax preparation season while helping charities. Since the tax code is so complicated, you may not understand how charitable tax deductions work. Here’s what you need to know. 

What Is a Charitable Tax Deduction?

A charitable tax deduction can take many forms. The most basic type is a cash donation, but you can also write a check, bill your credit card, or donate goods, real estate, or time. Depending on the type and the recipient, the donation may be fully or partially deductible or not deductible at all. For instance, you cannot claim a deduction for donating to an individual. The recipient must be an organization that meets the IRS 501(c)(3) designation or a qualified religious, educational, scientific, literary, or athletic group. 

What Can You & Can't You Claim?

If you make a cash donation, you can normally reduce your income by the entire amount of the donation during tax preparation season. Although, you must reduce the amount by the fair market value of any goods or services received in return. For example, this would apply if you received an alarm clock for your donation to a public television station or bought a $2,000 travel package for $4,000 at a church auction. Donated clothing and household goods must be in good condition—you cannot simply drop off a bag of old clothing and claim a deduction—and any items worth more than $500 must be appraised first. If you donate a vehicle and the recipient organization immediately sells it for cash, you can only deduct the amount they received, despite the car's fair market value. Keep any written records of the donation for at least three years.

What Are the Benefits of Such Deductions?

The main benefit is the reduced tax burden you can achieve by itemizing the deduction. However, it also reduces the cost of contributing to causes you believe in strongly, such as clean air initiatives, disease prevention, or wildlife preservation. Thus, it lets you give and receive simultaneously.

For fast, accurate tax preparation services, contact ZP Tax in Silver Spring, MD. They have served clients throughout Montgomery County for more than 20 years. In addition to tax preparation, they also offer payroll and bookkeeping services. Visit their website or call (301) 587-4829 to arrange a consultation.