Deducting charitable contributions is quite often tricky, but the eight essentials shared below will guide you. Donations made to qualified organizations may help reduce the amount of tax you pay. With that in mind, here are eight tips to help ensure your charitable contributions pay off on your tax return.
1. If your goal is a legitimate tax deduction, then your charitable contributions, whether a cash donation or non-cash gifts such as goods and services, must be given to a qualified organization. In addition, you cannot deduct charitable contributions made to specific individuals, political organizations or candidates.
2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all non-cash charitable contributions for the year is more than $500, you must complete and attach IRS Form 8283, Non-cash Charitable Contributions, to your return.
3. If, because of your charitable contribution you receive a benefit such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.
5. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
6. Regardless of the amount, to deduct a charitable contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization and the date and amount of the charitable contribution. For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the charitable contribution, and the amount given.
7. To claim a deduction for charitable contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all charitable contributions of $250 or more.
8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser. If you need assistance with Form 8283 don’t hesitate to schedule an appointment with us.
Contributed by Mike White, CPA of M. White & Associates, LLC