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Is My Donation Deductible? Part 1

Part 1: 8 Essentials for deducting contributions.

Since everyone’s individual IRS Form 1040 is due in a few days, we thought we would dedicate this entry to the “ins and outs” of deducting contributions. Donations made to qualified organizations could help reduce the amount of tax you owe. Based on IRS Tax Tip 2012-57, there are 8 essential tips you should be aware of before trying to take a charitable deduction:

  1. Give to a qualified organization.  You cannot deduct contributions made to specific individuals, political organizations or candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization. To become qualified, most organizations other than churches and governments must apply to the IRS and receive “tax exempt status.” Next time we will post about what organizations are qualified.
  2. Itemize your deductions.  To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
  3. Account for Fair Market Value.  If you receive a benefit because of your contribution 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 (ideally the organization’s donation acknowledgment will tell you what amount is tax deductible).
  4. Know the rules for donation of “stuff.”  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. There are IRS publications that detail how these things work. See our Free Resource Library.
  5. Know what Fair market value is.  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. Know the rules for donation of money.  Regardless of the amount, to deduct a 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 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 contribution and the amount given.
  7. Document all gifts over $250.  To claim a deduction for 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 contributions of $250 or more.
  8. Special forms for gifts over $5000.   Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Form 8283, which generally requires an original signature from a qualified appraiser and an original signature from the charitable organization as well as an appraisal prepared for your tax purposes.

For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining the value of donations, refer to Publication 561, Determining the Value of Donated Property. All are available at our Free Resource Library, at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

 

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