“It’s not how much we give but how much love we put into giving.” ~Mother Teresa
On behalf of all Texans – THANK YOU to every person who extended their help! Be it money and supplies donations, help with rescues and cleanup or moral support – all of that is deeply appreciated.
And while IRS write-offs certainly was not your motivation, it cannot hurt to get some tax relief in return. Unfortunately, the IRS rules aren’t simple.
Helping specific victims?
Totally commendable – but totally non-deductible. That’s right: giving money, food or clothes to individuals does NOT count under the IRS rules. It does not matter whether they are your neighbors, friends or total strangers. Does not matter how desperate they were. Does not matter what you did for them. The rule is very clear: no IRS deduction for directly helping specific people.
Can you get around this rule by giving a check to your church and then asking the church to turn around and help the victim? Unfortunately, no. Your donation to a charitable organization must be unconditional: you cannot tell the charity that your money is earmarked for such and such family. Once you donate the money, the organization is free to spend your donation any way they decide. Of course, they can choose to help these people with your donation – but you cannot require that they do so.
In short, if your goal is to help specific people – you will most likely not get any tax benefit from it.
Which organizations, then?
Any organization that is specifically recognized as a tax-exempt organization by the IRS. Just because you may decide to collect money for a great cause and use 100% of it for the cause – it does not make you a charitable organization for the IRS. Even for such obviously charitable cause as helping the victims of Hurricane Harvey. You must apply with the IRS for a designation as a tax-exempt organization.
How do you know if the organization you want to support is recognized by the IRS? Churches, synagogues, mosques and other religious institutions are a safe bet. Outside of religion, the IRS maintains a database that you can search online. You can also ask the charity to show you an IRS letter recognizing their exempt status. Or you can take a risk and assume that the charity is legitimate. I don’t need to explain to you why assuming and taking someone’s word is risky, do I?
Sadly, there’re plenty of crooks that will take your money using Harvey as their smoke screen. There’re also well-meaning but uninformed people who simply do not realize that they have to apply with the IRS before their organizations qualify for tax-deductible donations. Better check and be safe.
What about GoFundMe?
Nope, sorry. Public online fundraising goes by the same rules:
- no donations to specific individuals
- only IRS-recognized organizations
- unconditional donations, at the charity’s discretion
Most online fundraisers, including those thru GoFundMe and YouCaring, will not qualify. A few of them may be set up by IRS-recognized charitable organizations, but it is not very likely. Make sure to check first – if IRS deduction is important to you.
How do I deduct my volunteering?
You do not. Donations of time and labor are not tax-deductible. It does not matter what you did, how much time you spent and how much it was worth – no deduction.
You’re allowed to deduct two things related to volunteering:
- Out-of-pocket expenses specifically related to your volunteering: protective clothing, supplies, tools, technology
- Transportation costs: Uber or taxi, gas to travel to/from the work site or 14 cents per mile
Meals are not deductible, unless you are out-of-town and staying overnight. For out-of-town volunteers, travel costs are usually deductible.
What about sheltering the victims?
Great question. Under the standard IRS rules, there is no deduction. However, after some major past disasters (Katrina), the Congress issued special temporary tax breaks for people who opened their doors to the victims.
I expect to see similar tax incentives for hosting the victims of Harvey, but as of 8/31/2017, they have not been announced. Stay tuned.
Any receipts or documentation needed?
What do you think? Of course.
The complete IRS rules about documenting donations are long and confusing, as always. Here is the short version.
- Bank or credit card paper trail is always required
- Cash donations require a detailed receipt
- For donations of over $250, you must obtain a written acknowledgment
- If you purchased items to donate – keep the receipts
- For used clothing and household items – need an itemized list of everything
Once again, this is an incomplete list of rules.
How much my donations will save me on taxes?
I wish I could tell. Anywhere between $0 and half of your donation.
The reason charitable donations reduce taxes is that they are added to your itemized deductions. While the complete list of available itemized deductions is awfully long, four items usually make the bulk of it:
- State taxes if you have them (not in Texas) or sales tax allowance
- Mortgage interest on your personal home(s)
- Local property taxes on your personal home(s)
- Charitable donations
If the total of the above is less than the so-called standard deduction, you take the standard deduction: about $13k for a married couple; half of that for singles. When using the standard deduction, you donations make no difference on your taxes. For people who rent their homes, it is usually the case.
If your itemized deductions, including your donations, are above the standard level – then your donations benefit you according to your tax bracket. Your tax bracket can vary from 0% to almost 40%. If you also pay state income taxes, add your state rate on top of it. This is why your $100 donation can save you anywhere between $0 and $50.
Are we done?
We are never done when it comes to the IRS rules. There’s always more. For now, let’s keep in mind the most important points:
- Donations to individuals do not count, only to organizations
- Only certain organizations qualify
- No deduction for your time, labor or personal expenses
- Documentation is needed
And now, let me close on this quote:
“No one has ever become poor by giving” ~Anne Frank