How to keep track when preparing your taxes
As you prepare to do your taxes, one thing you may be trying to figure out is how much you donated to charity over the past year. Charitable donations are tax deductible, but you do need to have some record of the cash and goods you donated. To avoid the same kind of scramble and confusion next tax season, why not pay more attention to tracking your charitable contributions throughout 2020? Here are a couple of options for doing so.
1. Keep Physical Receipts
First of all, you should make sure you have an actual, written record of each item you donated and each monetary contribution you made. This record needs to include the date of the donation, along with the charity to whom the donation was made. The simplest, lowest-tech way to track your contributions is to just keep a folder of paper records.
The word "receipts" is a bit broad here and really refers to any paper record. For monetary donations, a copy of your credit card statement or bank statement showing the donation is sufficient. For property donations, a sheet of paper stating the name of the charity, date, and value of items donated will work. Most charities routinely provide this documentation to donors. If they do not automatically give you a record, just ask for one.
Note that if you donate more than $250 in cash to a charity, the IRS requires that you keep documentation from the charity—not just your own bank statement. For smaller monetary donations, a bank statement is sufficient.
2. Scan and Save Receipts
If you don't love paperwork and want to eliminate physical clutter from your life, then another option is to scan all of those receipts and documents you receive from charities throughout the year. You could even screenshot them on your smartphone and just keep them in a photo folder labeled "charitable contributions receipts." Just make sure you back up the files in case something happens to the phone or computer you're storing the scanned receipts on.
If you want to take this one step further, you can keep a spreadsheet in which you document all of your donations and total them. The IRS does not need this documentation—they mainly care that you have the receipts—but it can help you personally track how much you have donated.
3. Use an App
If scanning receipts and making your own folders seems a bit cumbersome, then you could go even more high-tech. There are a number of apps that are designed to track your charitable contributions for tax purposes. If you use any sort of tax prep software already, check to see if it comes with an associated app; this is usually the easiest option, since the information you enter will automatically input when it comes time to do your taxes.
There are also independent apps that allow you to track all of your potentially deductible expenses, from healthcare costs to work lunches. These apps categorize your purchases, total them, and offer guidance as to what is and is not deductible. Try out an app or two now, figure out which one you like, and look forward to simplicity when next tax season comes along.
Most charitable contributions are tax deductible, and if you do not keep track of them, you're essentially letting money go down the drain. Employ one of the strategies above in 2020, and stop letting those tax deductions slide by.