Using tax benefits through donations - how to do it right

Have you ever donated time, money or items to a charitable organization? If so, you are probably familiar with the term donation receipt or donation certificate. No? Well, then it's about time.

In this article, we'll explain how this system works in a little more detail. You'll learn how to use donation receipts and donation certificates correctly to reduce your tax burden and do good in the world at the same time. If you'd like to find out more about how you can make smart donations and help both yourself and others, then pay attention!

Why deduct donations?

Before we dive into the details, let's first take a look at why it can be useful to donate in the first place. First of all, donating to charitable organizations is a great opportunity to have a positive impact on society. Small or large donations do not only benefit people in need: associations and foundations finance their daily work with the money, many artistic or scientific institutions rely on this support, and political parties are also happy to accept financial donations.

According to the German Donations Council, around 18.7 million Germans donated a total of 5.7 billion euros in 2022, which was the second-largest sum since the survey began in 2005.

But it's not just the recipients of donations who benefit. The state encourages taxpayers who want to donate by allowing them to deduct special expenses in their tax return. This means that you can deduct your donations from your taxes and thus reduce your tax burden.

So if you are now considering supporting the work of an association or charitable organization with a donation in cash or in kind, don't forget to get a donation receipt or donation receipt in the future. What's the point? Good that you asked! Receipts and certificates for your donations allow you to deduct a portion of your donations from your taxable income through the aforementioned special expense deduction. They are also known as donation receipts. So if you deduct your donations from your taxable income, you can also enjoy considerable tax benefits. Incidentally, this includes not only monetary donations, but also donations in kind and voluntary work. Less tax and karma points saved at the same time: that's what we call a real win-win situation!

How does the tax deduction for donations work?

Let's get to the strong part aka Money Rain. Now that you know the benefits, you're probably wondering how you can best deduct your many, many donations from your taxes. Don't worry, you ain't gonna be a damsel in distress! Because it's easier than it might seem at first glance. Here's a step-by-step guide:

1. Prove donations: If you want to deduct donations or membership fees for tax-privileged purposes - for example, supporting your favorite animal shelter or the Silver Surfer's annual charity breakdance contest - you need to prove it using the "Zuwendungsbestätigung nach amtlichem Muster", formerly known as a donation receipt. You receive this confirmation from the recipient of the donation, who can also send it directly to the tax office electronically. This has been standard since 2017. The advantage for you is that you only have to keep the donation receipt and only present it at the request of the tax office, which means that there is only an obligation to keep it, but no obligation to present it.
2. Exceptions up to 300 euros: No formal donation receipt is required for donations and membership fees of up to 300 euros per payment. This simplified rule also applies to donations to state authorities, charitable organizations, disaster relief and donations to political parties, even if the donation amount is over 300 euros.
3. Donations over 300 euros: For donations over 300 euros, you generally always need a donation receipt from the recipient. However, there are exceptions, such as in the case of disasters or war situations, where the tax authorities have recently been more accommodating and have also accepted simplified proof for higher donation amounts.
4. Keep receipts: Regardless of whether you have a normal donation receipt or a simplified receipt, the first rule is always: take care of your receipts! In the unlikely event that your tax documents come under scrutiny, you don't want to break into a sweat and have all your receipts to hand.

But which donations can you actually deduct from your taxes? The tax office distinguishes between three types of donations:

• Donations to promote charitable and tax-privileged purposes.
• Donations to the assets of a foundation.
• Donations to political parties.

In all three cases, you must ensure that you donate the money voluntarily without expecting anything in return so that you can take advantage of the special expense deduction. In concrete terms, this means that you can deduct donations and membership fees to tax-privileged and non-profit associations that promote art, culture, religion or science, for example, in your tax return. You can declare up to 20 percent of your total income (§ 10b EStG).

Finding the right organization for your donations

Now that we've talked about why it can be smart to donate, both from an altruistic point of view and for entirely selfish motives, let's move on to the next point. Who should I donate to?

If you're unsure how to tell which organization is trustworthy and responsible with your money, there are a few helpful starting points. One option is to look for donation seals that reflect the trustworthiness of donation recipients. The German Central Institute for Social Issues (DZI) - along with other institutes - awards such seals and evaluates various aspects, including the use of donations and expenditure on advertising and administration. Organizations that meet appropriate standards have the opportunity to use the DZI seal for their public relations work, even if this is associated with costs. Another certificate is awarded by the German Donations Council, although smaller associations may not be considered.

A free alternative is offered by the non-profit Phineo AG, which is committed to social engagement. Organizations that handle donors' money responsibly can receive the "Wirkt-Siegel" seal of approval from Phineo. You can also contact the alliance of over 20 major German aid organizations, which operates under the name Aktion Deutschland Hilft e.V. and has been awarded the "TÜV tested online portal" seal for transparent and particularly economical use of donations.

Donations in practice: tips & examples

So now you know how the lifehack tax deduction for donations works. To put the icing on the cake, here are some practical tips to make the most of donating and saving tax at the same time:

• Planning is key: By planning your donations in advance, you can ensure that you get the most out of your tax benefits. Consider how much you want to donate and to which organizations in order to carry out effective donation-based tax planning.
• Corporate donations: Have your own business? Excellent! Then you can now also deduct corporate donations. Not only is this a great way to do good, but it can also have a positive impact on your company's image and, last but not least, have a favorable effect on your tax burden.
• Community projects: Joint fundraising projects with friends, family or colleagues can not only be fun, but can also increase the impact of your donations.

Cleverly combine donations & tax benefits

Combining donations and tax benefits is not only the best opportunity for your karma account, but also a smart financial decision. You can make the world a little bit of a better place and reduce your tax burden at the same time. Keep in mind, however, that carefully storing your donation receipt is crucial to fully utilizing these tax benefits - and opening the door to an unannounced visit from the IRS with a smile.