Charities: what is the tax benefit of making donations? How does it work?
Posted on December 18th, 2009 by admin
Is it like you buy something for $25 and the organization in charge says you are actually buying from them products for $125 which they donate on your behalf and you end up spending $25 but obtain tax deductions for $125.
Is it how it actually works?
and if so, how and who gets those organizations authorized to make those arbitrary prices … or maybe prices are not that arbitrary, or there is something else I’m missing.
How are charity donations used for tax deductions. can you explain, please. Thank you.
well, there is nothing written on the receipt that says you have made a donation? how to prove it if an auditor comes? …and ovewrall, my question was from the point of view of a charity organization – they offer tax deductions to businesses – how they do this. what is the mechanism, how is the ‘math’ done?
Sounds like this is a cash contribution, and if that’s the case, then what your ACTUAL cash contributed to a legal charitable organization – 501(c)(3).
For example, if you contributed $100 to a charitable organization, then you’d be able to deduct $100.
By the way, from a tax standpoint, charitable contribution requires the use of itemized deduction, instead of normal standard deduction. So, the overall itemized deductions should only be used if it is higher than the amount of the standard deduction.
Sometimes your donation contain values of goods and services, these items you cannot deduct.
For example, if you contributed the same $100 as above, but $50 was for two tickets of an event. In this case you can only deduct $50 instead of $100.
As always, keep receipts of everything, as well as letters those charitable organizations send to you.
December 18th, 2009 at 10:44 pm
Sounds like this is a cash contribution, and if that’s the case, then what your ACTUAL cash contributed to a legal charitable organization – 501(c)(3).
For example, if you contributed $100 to a charitable organization, then you’d be able to deduct $100.
By the way, from a tax standpoint, charitable contribution requires the use of itemized deduction, instead of normal standard deduction. So, the overall itemized deductions should only be used if it is higher than the amount of the standard deduction.
Sometimes your donation contain values of goods and services, these items you cannot deduct.
For example, if you contributed the same $100 as above, but $50 was for two tickets of an event. In this case you can only deduct $50 instead of $100.
As always, keep receipts of everything, as well as letters those charitable organizations send to you.
References :
December 18th, 2009 at 10:51 pm
Uh, no, you have it backwards. The most you can deduct is what you actually paid, minus the value of what you got. When you see on public TV that if you donate $300 you’ll get a CD set, they’ll send you a receipt showing that you donated $300 but the merchandise you got in return was say $50 – in that case your charitable deduction would be $250, not the whole $300.
If you just buy something from a charity, for example buy a DVD from a public TV website, there’s no deduction, it isn’t a charitable contribution it’s a purchase – you paid say $30 and got something worth $30.
They offer tax deductions to businesses and to individuals for DONATIONS where you donated to them but didn’t get anything back. If you made a donation, it will say the amount on the receipt. If you made a purchase, it won’t say a donation amount because there isn’t one.
If you make a charitable donation AND if you itemize on your tax return, you can show the donation (not item purchase price) as an itemized deduction. That would reduce your tax or increase your refund by the amount of the donation times your tax bracket. So if you’re in a 15% bracket, and donate $100, you save $15 in tax, the other $85 is out of your pocket. If you don’t itemize, there is no tax savings.
For your contribution to be deductible at all, the organization must apply to the IRS for, and be granted, something called 501(c)3 designation.
References :