IRS Offers Tips for 2012 Year-End Giving

12.19_Contributions

Individuals and businesses making contributions to charity should keep in mind some key tax provisions that have taken effect in recent years, especially those affecting donations of clothing and household items and monetary donations.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

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6 Tips for Charitable Taxpayers

I don’t like linking charity with taxes.  I’m of the mind that if you feel compelled to give money to a person or an organization, you should go ahead and do it, and the tax benefits should be an afterthought.  I’m glad that the IRS does allow some tax benefits for charitable giving, but before I get into those, I just wanted to stress that you should follow your heart, not your 1040 in this instance.

OK, now that I’ve said that, if you DO give and want to see how to maximize the benefits, here are 6 tips from the IRS:

1. Tax-exempt status. Contributions must be made to qualified charitable organizations to be deductible. Ask the charity about its tax-exempt status, or look for it on IRS.gov in the Exempt Organizations Select Check, an online search tool that allows users to select an exempt organization and check certain information about its federal tax status as well as information about tax forms an organization may file that are available for public review. This search tool can also be used to find which charities have had their exempt status automatically revoked.

2. Itemizing. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

3. Fair market value. Cash contributions and the fair market value of most property you donate to a qualified organization are usually deductible. Special rules apply to several types of donated property, including cars, boats, clothing and household items. If you receive something in return for your donation, such as merchandise, goods, services, admission to a charity banquet or sporting event only the amount exceeding the fair market value of the benefit received can be deducted.

4. Records to keep. You should keep good records of any donation you make, regardless of the amount. All cash contributions must be documented to be deductible – even donations of small amounts. A cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity that includes the charity’s name, contribution date and amount usually fulfill this record-keeping requirement.

5. Large donations. All contributions valued at $250 and above require additional documentation to be deductible. For these, you should receive a written statement from the charity acknowledging your donation. The statement should specify the amount of cash donated and/or provide a description and fair market value of the property donated. It should also say whether the charity provided any goods or services in exchange for your donation. If you donate non-cash items valued at $500 or more, you must also complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a contribution of noncash property worth more than $5,000, you typically must obtain a property appraisal and attach it to your return along with Form 8283.

6. Timing. If you pledge to donate to a qualified charity, keep in mind that for most taxpayers contributions are only deductible in the tax year they are actually made. For example, if you pledged $500 in September but paid the charity just $200 by Dec. 31 of that same year, only $200 of the pledged amount may qualify as tax-deductible for that tax year. End-of-year donations by check or credit card usually qualify as tax-deductible for that tax year, even though you may not pay the credit card bill or have your bank account debited until after Dec. 31.
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Tax Court Disallows Charitable Deduction

The Tax Court recently sided with the IRS and disallowed a taxpayer’s charitable deduction to their church.  The contributions were primarily made up of checks written to their church for amounts larger than $250.  The church acknowledged its receipt of the contributions on a year-end statement to the taxpayers, but there was no language concerning whether any goods or services were provided in consideration for the contributions, as required by the IRS code.

 

Folks — make sure that if you donate $250 or more to a charity that you get a written acknowledgement of the contribution.  Here’s what it HAS to specifically include:

  • The amount of the cash and a description of any property other than cash
  • Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property donated
  • A description and good faith estimate of the value of any goods or services received, or if such goods or services consist solely of intangible religious benefits, then it must state that.

New Search Tool for Charities

Last week, the IRS launched a new tool to help users more easily find information about tax-exempt organizations.

This new search tool consolidates three former search sites into one.  It will allow you to search for entities that are eligible to receive tax-deductible charitable contributions, have had their tax-exempt statues automatically revoked, or have filed a Form 990-N annual electronic notice.

Please keep in mind that this lists only entities that are required to file an exemption application.  This search tool may not include organizations like churches or other entities, even though those entities are still eligible to receive tax-deductible charitable donations.

New Tax Break — Haiti Contributions

A new tax law allows people who contributed in 2010 to charities providing earthquake relief in Haiti to take a tax deduction for the contribution on their 2009 tax return instead of their 2010 return.  You do not have to wait; you can receive an immediate tax benefit. 
 
Certain requirements apply.  Call our office or visit www.irs.gov for more information.