Tax Tip: Deducting Charitable Contributions
While many taxpayers participate in #GivingTuesday to show support for their favorite causes, others choose to make charitable gifts throughout the year. Giving money or goods to a tax-exempt charity before Dec. 31st can usually be deducted on that year’s federal income tax return. However, there are a few things you should know before writing that check to help ensure you receive the full benefit of your donation.
Selecting the Right Charity
It’s 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. Churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in this database.
Obtaining Proof of Your Donation
A bank record and/or a written statement from the charity is needed to prove the amount and date of any monetary donation. Basically, you need to be able to prove that the money for the donation was actually paid by you. This might include receipts for cash checks, electronic funds transfer, credit cards and payroll deductions. 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 all gifts worth $250 or more, donors must get a written acknowledgement from the charity which must include, among other things, a description of any items contributed. Special rules apply to cars, boats and other types of property donations (see Donating Property below).
Itemizing Your Donations
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.
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. Use the Form 1040, Schedule A to determine whether itemizing is better than claiming the standard deduction.
Besides Schedule A, taxpayers who give property to charity usually 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.
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. All 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.
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.
Get Help Filing Your Tax Return
William D. Truax and his friendly team of Enrolled Agents (EAs) and licensed tax preparers have been helping individuals and business with charitable deductions for over 30 years. They understand how donations must be reported on your tax return and which qualify for a deduction.
If you have any questions about a charitable gift you’ve made or would like help determining how to report donations on your tax return, please CONTACT US right away. We’re here to help!