The tax laws that surround charitable giving are the same throughout the entire year, but currently we're 9 days away from the biggest charitable month on the calendar so it feels like the perfect time to address this topic.
Americans donate over $300 billion to charities every year. 30% of those donations come in the month of December. And a whopping 10% ($30+ billion) come in during the last 48 hours of the year.
Americans are very generous and charitable in general. We're also known to procrastinate. Combine this with the holiday season and and opportunity for a tax deduction- the month of December becomes a perfect storm for massive giving.
Donating through a payroll deduction
Many donors choose to give to their charity of choice through a payroll deduction, similar to how they'd contribute to a retirement account. A charitable payroll deduction allows a donor to "spread" their gift out over the course of a year so it's automatic and easier on cash flow.
While payroll deductions are a common way for donors to give to their charities of choice, federal law does not allow for charitable donations through payroll deduction to be done pre-tax. That means you don't get the deduction each pay period.
Instead, your charitable donations come out of your after-tax earnings. So you can deduct the total amount deducted from your payroll checks during the year on the “Gifts to Charity” line of your Schedule A (if you choose to itemize instead of claiming the standard deduction). Also, employer matching does not count toward your deduction.
Exempt Organizations Select Check
From the IRS, the Exempt Organizations Select Check is an online search tool that allows users to search for and select an exempt organization and check certain information about its federal tax status and filings. If you're expecting a tax deduction from your charitable donation, it's best to make sure your charity of choice is eligible for tax deductions.
Check it out here.
The guidelines for payroll deductions to charities
The IRS has recordkeeping requirements for people who'd like to claim tax deductions for their charitable payroll deductions.
According to Notice 2006-110, a taxpay should obtain a pledge card that shows the name of the charity PLUS one of the following...
- a pay stub
- their W-2
- another document furnished by the employer that shows the total amount withheld for payment to charity
This policy was enacted in 2006. Then-IRS Commissioner Mark W. Everson said about the policy, "This makes it easier for businesses and individuals to support worthwhile charities without fear of losing the deduction."
Click here to read Notice 2006-110 and more about the recordkeeping requirements for charitable deductions through payroll.
We also found an interesting article on Forbes from late 2015 that offers 11 Tips For Making Your Charitable Donation Count On Your Taxes.