How Charitable Holiday Giving Pays Off at Tax Time

In the season of giving, many people contribute time and money to charities. But are Christmas donations and other holiday gifts tax-deductible? Writing checks up to Dec. 31 gives individuals valuable tax write-offs come next April. If, like many of us, you have more extra time than money, you can still get tax breaks from volunteering and making donations. Keep reading to see how to give to the common good while lowering your taxable income – and maybe even padding that refund check.

Is there a limit to how much you can donate?

Every year, the Internal Revenue Service updates how much of your adjusted gross income you can deduct. Good news: the IRS extended the Taxpayer Certainty and Disaster Relief Act of 2020 through the end of 2021. To make your donations count as tax write-offs, take advantage of these temporary special provisions and higher limits.

Charitable gifts and donations

As you put together items to give to the needy, from clothing to household goods and food to larger items like vehicles, paperwork is key. To write off holiday gifts and donations year ‘round, itemize your deductions and their worth (check out this fair market calculator from Goodwill). Be sure to get and fill out a receipt from the charity that outlines the name of the organization, the date you made your donation and a description of what you gave. Keep all your receipts in a box or file folder. If your donations for the year don't exceed $250 and there is not a way to get a receipt (taking things to a drop box, for instance), you can do without.

Finding a tax-free nonprofit

Once you find a cause that you believe in, but before you give them a holiday gift, make sure they are legit. Check the IRS Tax Exempt Organization search, a current record of organizations that are eligible to receive tax-deductible charitable contributions. You can go one step further to see how different nonprofits use their money and even pay their executives. Charity Navigator is a smart tool for figuring out who to trust with your money.

Should you contribute to crowdfunding?

GoFundMe, Crowdfunder and Kickstarter are attractive ways to send money to people and causes you want to support. But remember: you cannot claim a tax deduction for contributions to individuals (a family whose house burned down, a friend struggling with illness), whether you give them a cash gift directly or through a crowdfunding source. The same applies to for-profit hospitals and schools, labor unions, political groups or parties, social clubs or foreign organizations and governments. Only IRS-approved charities count, 501(c)(3) organizations registered and recognized by the government and regulated by federal or state law.1 Even then, most crowdfunding sites will deduct a processing fee, a percentage that will not go to the charity and that you cannot write off.

The cost of volunteering

Whether you’re helping at a soup kitchen, religious organization, homeless shelter, animal rescue, nonprofit hospital or other qualified charity, you can’t write off your time. But you may be able to write off out-of-pocket travel expenses for charity work that aren’t reimbursed or for personal purposes. (For instance, if you are visiting a relative in the hospital, that expense isn’t tax deductible.) Keep a log of meals, mileage, parking and tolls, hotel expenses, airfare and ground transportation, as well as the purchase and cleaning of required uniforms. For guidance, use this Out-of-Pocket Expenses in Giving Services created by the IRS.

Did you contribute to a healthier planet?

You may earn a little green for going green. Look around your home and see if you have invested in features you can claim as Residential Energy Efficient Property Credits. Qualified solar paneling on your roof and other solar electric? Small wind turbines? Geothermal heat pump? Even the type of furnace, hot water boiler and fan you’ve installed can make a difference. See the details here and check out the eligibility dates. 2021 may be the last year to file for some of these deductions.

Giving without giving cash away

Every little bit counts, and there are many ways to pay it forward without spending money. Being generous with your time and talents can improve lives, give you the warm fuzzies – and pay off at tax time with less tax owed or a larger refund check. And we have ideas for how to put that to good use, too.

“Charitable Contribution Deductions.” Internal Revenue Service, www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions.