Charitable giving has many benefits, including the possibility of being able to take a deduction on your tax return. Here are some things to keep in mind.
1. The first thing to keep in mind is you can only take a charitable deduction if you use Schedule A for itemized deductions instead of using the standard deduction.
2. You can only take a deduction if the organization is a qualifying charitable organization. You can ask an organization if they’re qualified or visit http://www.irs.gov/app/pub-78/. Most churches, the Red Cross, most Food Pantries, Goodwill, etc., are qualified charitable organizations. You can never deduct payments to an individual as a charitable contribution.
3. Generally, you can deduct your cash contributions or the fair market value of most property. If you donate used clothing or household items, you will need to use the thrift shop value. Valuation guides can be found on the Salvation Army and Goodwill websites to assist you.
4. If you receive something in return for your giving, such as merchandise, goods, or services, you can only deduct the amount given that exceeds the fair market value of the benefit you received.
5. Keep a record of any contribution you make, regardless of the amount. The record can be a cancelled check, bank or credit card statement, payroll deduction record, or a written statement from the charity.
6. You can only deduct contributions actually paid during the year. For example, if you pledge $1,000 in July but only end up paying $300 of it by December 31, you can only deduct $300. You don’t have to pay your credit card bill before you can take the deduction, making the charge by the end of the year is enough. Likewise checks do not have to be debited from your account by the end of the year, as long as you write it and send if off by December 31, you can count it. In years past the IRS has made special rules for contributions for disaster relief for situations that occurred before tax returns are due. These exceptions can be to your advantage.
7. If you make a contribution of $250 or more, you need a written acknowledgment from the organization. The acknowledgment must include the amount of cash donated and whether any goods or services were provided. If you donate property, the acknowledgment needs to include a good faith estimate of its value. If your donated property is valued at more than $5,000, you need to obtain an appraisal.
8. Approximately 275,000 organizations lost their tax-exempt status because they didn’t file their annual reports for three consecutive years. If you donated to any organizations on the list prior to their losing their tax-exempt status, you can still claim a charitable deduction. Once the organization is on the list, and until they are reinstated, any contributions to the organization are not allowed a charitable contribution for income tax purposes. For a list of organizations who lost their tax-exempt status, visit www.IRS.gov.
For more info on this topic please contact Bethany Pursifull at firstname.lastname@example.org or give her a call at 501.753.9700.