Charitable giving is good for your heart and could be good for your tax bill, as well. There are a few items to note to ensure that you receive the maximum benefit available to you.
The first requirement to deduct an amount as a charitable contribution is that you must file Form 1040 and you must itemize deductions on Schedule A. If you utilize the standard deduction, you will not receive any tax benefit for your generosity. After you have determined that you will itemize deductions, you will need to make sure that your donation was made to a qualified organization. Contributions made to specific individuals or political organizations are never deductible. Internal Revenue Service Publication 78 provides a specific list of organizations that qualify.
Once you have established that an organization is a qualified charity, proper documentation is crucial to obtain the benefit. In order to deduct a contribution of cash, check or other monetary gift that is less than $250, you must have proof such as a bank record, payroll deduction or a written communication from the organization that contains the name of the organization, the date of the contribution, and the amount of the contribution. For contributions greater than $250, you must obtain a written acknowledgement from the charity which also states that no goods or services were received in exchange for the gift. You must obtain the written acknowledgement before your tax return is filed.
Noncash gifts, such as clothing and household items, may also qualify for a deduction. The property must be in good used or better condition to be deductible. The amount of the deduction is equal to the fair market value of the property at the time it was donated. It is the responsibility of the taxpayer to determine the value of such property. If you contribute noncash items worth over $500 to charities during the year, you must complete and attach Form 8283(Noncash Contributions) to your tax return. In the even that you donate property worth more than $5,000, you will need to obtain a qualified appraisal of the property. Volunteer expenses such as travel and out of pocket expenses for food or supplies paid for on behalf of the organization are also acceptable contributions, as are contributions of vehicles and securities.
The Internal Revenue Service provides various publications to assist with issues regarding charitable contributions. Publication 526 provides specific detailed instructions on reporting transactions and Publication 561 provides guidance on assigning values to donated property. Take advantage of the charitable contribution deduction—both parties may reap benefits.
Shana R. Kennedy, CPA is affiliated with Baer And Company, CPAs. Questions or comments can be directed to Shana at Shana@BaerAndCompanyCPAs.com
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