As tough as the economy is, Americans in significant numbers continue to support local and national charities and to deduct the contributions on their tax returns. Unfortunately, the IRS sometimes disallows the deductions.
The IRS wants taxpayers to be aware of several things before they deduct charitable donations, and has come out with nine helpful tips. Some are pretty obvious: For instance, you have to give the IRS an itemized list of your deductions.
Others deal with more complicated issues. For example, how much can you deduct for the three-year-old pickup you gave to the local food kitchen that delivers to homebound people? Or, how much can I deduct for a pledge I made at midyear that I don’t have to fully pay out until next year?
Then there are the organizations themselves. The IRS points out that not every “charity” is eligible for a deduction, and that this year 275,000 U.S. groups automatically lost their eligibility.
1) Trust, but Verify: You love the charity and its work. But hold on. Before you write a check to the organization, make sure it qualifies for a deduction. Just ask, or if you prefer to be discreet, look up the group in IRS Publication 78, Cumulative List of Organizations.
2) You Must Itemize: You may say “duh,” but not everyone realizes you have to itemize deductions in order for your charitable contributions to be deductible. You do this by using Form 1040, Schedule A.
3) What You Can Deduct: Besides cash contributions, you can generally deduct the fair market value of most property you donate to a charity, whether it’s a boat, a car or an old blazer. Special rules apply to some types of property.
4) Quid Pro Quo: Say your contribution entitles you to free admission to a sporting event or charity banquet, or to receive other goods or services. How much can you deduct? The IRS says only the amount exceeding the fair market value of the benefit you received.
5) Recordkeeping: It’s a good idea to keep a record of any contribution you make, no matter how small or large. The IRS wants you to maintain a record of any cash contribution. This can be a canceled check, a bank or credit card statement, a payroll deduction record or a written statement for the recipient group with its name and the date and amount of your contribution.
6) Pledges and Payments: You filled out one of those pledge cards from a local homeless organization or a food kitchen back in June, promising to contribute $1,000 over the next 12 months. Come Dec. 31, you’ve paid the charity $600. How much can you deduct for the tax year? The IRS says just the $600 because only contributions actually made during the tax year are deductible.
7) Year-End Donations: It’s a couple of days before New Year’s, and you finally sit down to make some charitable contributions, writing checks or charging a credit card. Problem is, your bank account isn’t going to be debited and you’re not going to pay the credit card bill until next year. The IRS knows this, and allows you to claim deductions for these charges and check payments in the year you gave them to charity.
8) Large Donations: Bigger donations mean more work for you in order to get a deduction:
$250 or more: You’re required to have a written acknowledgment from the charity that includes the amount of cash and whether it provided any goods or services in exchange for the gift. For property you donated, the acknowledgement must describe the items and provide a good faith estimate of their value.
$500 or more: You have to complete a Form 8283, Noncash Charitable Contributions, and attach it to your return.
Noncash property worth more than $5,000: Generally, you have to get an appraisal and complete Section B of Form 8283.
9) Tax Exemption Revoked: The bad news is you just heard that one of your favorite charities automatically lost its tax-exempt status in June because it didn’t file required annual reports for three consecutive years. The good news is that the check you sent the group earlier in the year remains deductible—this tax year. But be aware: Any group on the auto-revocation list that doesn’t get reinstated will no longer be able to receive tax-deductible contributions.
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