While many taxpayers participate in #GivingTuesday on Nov. 28, others choose to make charitable contributions throughout the year. Giving money or goods to a tax-exempt charity before Dec. 31 can usually be deducted on that year’s federal income tax return. We often get asked what types of donations qualify so I thought this might be a good opportunity to clear a few things up!
Only Donations to Eligible Organizations are Tax-Deductible.
The IRS Select Check tool on IRS.gov is a searchable online database that lists most eligible charitable organizations. Churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in this database.
Itemize to Claim Charitable Donations
Charitable deductions are not available to individuals who choose the standard deduction. Only taxpayers who itemize using Form 1040 Schedule A can claim deductions for charitable contributions. Tax preparation software may alert taxpayers to the savings options available if itemized deductions exceed the standard deduction. However, we strongly recommend you consult one of our tax professionals to ensure you’re getting the most from your charitable giving.
Get Proof of Monetary Donations
A bank record and/or a written statement from the charity is needed to prove the amount and date of any donation of money. Basically, you need to be able to prove that the money for the donation was actually paid by you. Money donations can include various forms apart from cash such as check, electronic funds transfer, credit card and payroll deduction. Taxpayers using payroll deductions should retain a pay stub, a Form W-2 wage statement or other proof showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
For donations of clothing and other household items, the deduction amount is normally limited to the item’s fair market value. Clothing and household items must be in good or better condition to be tax-deductible. If you have donations of property totaling over $500 for the year, your donations are subject to higher record-keeping standards than if your total is below $500. 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 their tax return. Also, donations of property totaling over $5,000 annually require such an appraisal. However, such appraisals have to meet strict paperwork requirements and are easy to mess up. Check with us before you make any non-cash donation for which an appraisal might be required.
Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed. Special rules apply to cars, boats and other types of property donations. The IRS.gov website has information to help you determine the value of donated property.
Note Any Benefit in Return
Donors who get something in return for their donation may have to reduce their deduction. Benefits can include merchandise, meals, tickets to an event or other goods and services. A donation acknowledgment must state whether the organization provided any goods or services in exchange for the gift along with a description and estimated value of those goods or services.
Older IRA Owners Have a Different Way to Give
IRA owners age 70½ or older can transfer up to $100,000 per year to an eligible charity tax-free. The transfer can count as their required minimum distribution for the year. Funds must be transferred directly by the IRA trustee to the eligible charity. For details, see Publication 590-B.
The type of records a taxpayer needs to keep depends on the amount and type of the donation. An additional reporting form is required for many property donations and an appraisal is often required for larger donations of property.
If you have questions about charitable donations or would like assistance calculating your deduction, please contact us today for a FREE consultation. We’re here to help!