Tax Tip: Deducting Charitable Contributions

For any taxpayer, keeping good records is key to qualifying for the full charitable contribution deduction allowed by law. In particular, this includes insuring you have received required statements for two contribution categories—each charitable gift of at least $250 and donations of vehicles.

First, to claim a charitable contribution deduction, donors must get a written acknowledgement from the charity for all contributions of $250 or more. This includes gifts of both cash and property. For donations of property, the acknowledgement must include, among other things, a description of the items contributed.

In addition, the law requires that taxpayers have all acknowledgements in hand before filing their tax return. These acknowledgements are not filed with the return but must be retained by the taxpayer along with other tax records.

Second, special reporting requirements generally apply to vehicle donations, and taxpayers wishing to claim these donations must attach any required documents to their tax return. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

It’s also important to be sure any charity you are giving to is a qualified organization as only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible even if they are not listed in the tool’s database.

Only taxpayers who itemize their deductions on Form 1040 Schedule A can claim gifts to charity. Thus, taxpayers who choose the standard deduction cannot deduct their charitable contributions. This includes anyone who files a short form (Form 1040A or 1040EZ).

A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Form 1040, Schedule A is used to determine whether itemizing is better than claiming the standard deduction.

Besides Schedule A, taxpayers who give property to charity sometimes must attach a special form for reporting these non-cash contributions. If the amount of the deduction for all non-cash contributions is over $500, a properly-completed Form 8283 is required.

Rules for Charitable Contributions of Clothing and Household Items

  • This includes furniture, furnishings, electronics, appliances and linens.

  • Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Guidelines for Monetary Donations

  • A taxpayer must have a bank record or written receipt from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date and the transaction posting date.

  • Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Year-End Gifts

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2015 count for 2015, even if the credit card bill isn’t paid until 2016.

  • Checks count for 2015 as long as they were mailed in 2015.

William D. Truax and his friendly team of Enrolled Agents (EAs) and licensed tax preparers have been helping individuals and business handle even the most complex tax situations for over 30 years. They understand how the tax system works are and offer a full spectrum of financial services to help ensure the IRS doesn’t come knocking.

In addition, Mr. Truax is a member of the Bar of the United States Tax Court – a privilege very few EAs are granted. He is also a fellow and Accredited Tax Advisor of the National Association of Tax Professionals and a member of the National Association of Enrolled Agents.

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