A tax-deductible contribution to an eligible non-profit charity can entitle you to a tax deduction against your income tax, if you itemize deductions on your tax returns. To take a tax deduction, you must itemize your deductions. A deduction is deductible only in the year for which it is claimed. In order to qualify for a tax reduction, you must also meet other requirements, including filing all your income tax returns, if you are self-employed and not claiming any deductions on your personal income tax return or on your retirement income tax return.
There are two types of charitable donations. One is a charitable contribution made in compliance with the law, and the other is a tax-deductible contribution made in compliance with the policy of the charity. A charitable contribution made in compliance with the law is a taxable item. Thus, the amount of the contribution is taxable. The amount of a tax-deductible contribution is exempt from tax. Charitable contributions made in compliance with the policy of the charity are deductible as a charitable contribution.
Taxation of donations: There is a difference between the taxation of a charitable contribution and the taxation of the individual or family that made the gift. The gift, whether made in compliance with the law or not, is a taxable income. It will be subject to income tax. However, the tax-paid amount of the gift is treated as an exempt income under section 636 of the Internal Revenue Code. The exempt income is reduced before paying the tax.
For this reason, some people prefer to make their charitable donations via the check and a credit card. Charitable contributions made by check are always subject to UBIT, which is applied to the taxes on the item. The rate of tax on a check is 10%. Charitable contributions made via a credit card, however, are not subject to UBIT and can be deducted at a lower rate if itemized during the year.
The charitable contribution deduction can also be obtained through the establishment of a nonprofit organization. In this case, the contributions are made to the charity on behalf of the individual or an organization. The deductible amount for this purpose can be anywhere from zero to 25% of the value of the contribution. A person can also deduct a specific percentage of his or her income, if the income is the result of working away from home, and the deduction is made for a particular year. However, in order for this type of contribution to qualify as a charitable contribution, the contribution must be made in compliance with the terms and conditions of the organization.
Another way to get the charitable deduction is through the performance of a qualifying activity. Qualifying activities include volunteer work, business activities, public service and other similar activities. An individual may be able to deduct up to 50% of the amount that he or she would otherwise be required to pay to be involved in a qualifying activity. Any amount by way of compensation paid to an organization for a service or product that it provides to the public is also considered a charitable contribution.