December 8th, 2011 by

By Michelle Werts

What does December bring to mind? For me, it’s a chill in the air — any day now would be nice, D.C. (this Midwest girl needs her snow) — baking, shopping and family, although not necessarily in that order. For many, December is also synonymous with Salvation Army Santas, Toys for Tots and other worthy charities. Magazines provide lists of nonprofits to support — thanks Outside magazine for naming us as one of 30 organizations and innovators who are “truly making a difference.” And we all spread goodwill toward our fellow men and women when we can, making December the busiest time of year for charitable giving.

But, are you, like me, a little unclear about what these donations mean come tax time? Well, my friends, I’ve decided to do some research to figure out exactly how yuletide charitable gifts can give back come April 15th.

Credit: Aaron Patterson/Flickr

Let’s start with the most basic information: a gift to American Forests this December can mean much more than just cleaner air, cleaner water, and a healthier planet — it may mean you pay less in taxes! How’s that now? When you give to a charity, like American Forests, you are potentially lowering your taxable income because you can subtract the combined total of your gifts from your adjusted gross income. And a lower taxable income may mean you pay lower taxes! But there are key tips to remember and to take advantage of to make this happen:

  • The more the merrier: Remember those old clothes and furniture you donated earlier this year? That monthly donation you sent to your favorite charity? That one-time donation to your local firemen? You want to remember them all, dig out the receipts and thank you letters, and add the totals. The higher the total of your charitable gifts, the better chance you have of lowering your taxable income.
  • Check, please: Want to count that $20 you dropped in Santa’s bucket for your taxes? Easier said than done because the IRS needs proof of your donation — and Santa sees a lot of faces during December. Therefore, always get a receipt for that donation or better yet write a check or use your credit card on a secure website or via telephone. The IRS needs documentation of the name of the organization you donated to, the date you made the donation and the amount you donated.
  • Happy New Year: Happy that is if you remembered to make your donations prior to December 31st. Remember that merely dating the check December 31st isn’t enough — your envelope has to be postmarked on the last day of the year to qualify for your 2011 taxes!
  • The sky’s the limit … up to 50 percent: You can only deduct 50 percent of your income in one year. So, if you made $40,000 this year, the maximum you can deduct in charitable gifts is $20,000. But, unlike income which has to be counted in the year it’s earned, any unclaimed generosity from one year can be rolled to the next.

From here, things get a bit more complicated and specific, such as having to itemize your deductions (meaning use the Schedule A form), the fact that most charitable gifts need to be given to a 501 (c)(3) organization to count, etc., so let’s stop why we’re ahead and before my head begins to hurt too much. I hope this information was as useful for you as it was for me. Now, go out, shop green and give the gift of trees!

Disclaimer: I am not now nor will I ever be a tax professional. While I have done my best to provide you with the basics, make sure to consult with a tax professional for advice on your specific tax situation.