As we approach the end of the year, our mailbox fills up with requests for money from all the charities we’ve ever supported and some we’ve never even heard of. As you evaluate your charitable giving for the year and figure out how much you want to donate, keep these tax tips in mind.
1. Qualified Charities. You must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. Make sure that you are giving to a 501(c)3 organization. If you’re not sure, ask.
2. Itemize Deductions. To deduct your contributions, you must file Form 1040 and itemize deductions. If you don’t itemize, you can still donate to charity, but it won’t affect your tax return.
3. Benefit in Return. If you get something in return for your donation, you may have to reduce your deduction. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.
4. Type of Donation. If you give property instead of cash, your deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market. If you donate used clothing and household items, they generally must be in good condition, or better, to be deductible. Special rules apply to cars, boats and other types of property donations.
5. Form to File and Records to Keep. You must file form 8283, Noncash Charitable Contributions, for all noncash gifts totaling more than $500 for the year. If you need help setting a value for your donations of used items, google Donation Value Guide.
6. Donations of $250 or More. If you donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether you received any goods or services in exchange for the gift.
You must get this acknowledgement on or before the date you file your tax return. Remember, having a cancelled check isn’t enough proof, you have to have the letter of acknowledgement as well. If the IRS decides to audit you and you get a letter dated after the date you filed your return, the IRS will disallow your deduction, even if you can prove you made it.
Questions? Call us! We are always happy to talk taxes!