Regardless of whether you’re donating to your favorite charity or giving to a new organization this year, follow these tips to ensure everyone benefits from your donation:
Donations must be made by the end of the tax year for which you want to claim the deduction. If you put a check dated December 31 in the mail by that day, you’re okay. The same goes for donations charged by year’s end to your credit card – even if you don’t pay the bill until next year.
Research first. Only donations to qualified charitable organizations are deductible. If you’re not sure whether an organization is qualified, ask to see its letter from the Internal Revenue Service (IRS.) Many organizations will actually post their letters on their websites. You can search online using IRS Exempt Organizations Select Check. Churches, synagogues, temples and mosques are considered de facto charitable organizations and are eligible to receive deductible donations, even if they’re not on the list.
Get receipts. Cash deductions must be substantiated by a bank record (such as a canceled check or credit card receipt, clearly annotated with the name of the charity) or in writing from the organization. The writing must include the date, the amount and the organization that received the donation. You don’t have to submit the receipt with your tax return, but you need to be prepared to show it if you are audited.
If you receive something in exchange for your donation – no matter how big or small – the donation is deductible only for the amount the donation exceeds the value of any goods or services received.
Document. Be sure to keep good records of all donations. If you donate non-cash items, you’ll need to be able to substantiate the value of your donation.
Substantiation Requirements -The basic rules are summarized in brief, below:
Donations of money. A bank record or a written communication from the charity is required for every cash contribution.
Noncash donations worth less than $250. Separate contributions of less than $250 are not subject to the written acknowledgment requirement regardless of whether the sum of the contributions made by a taxpayer to a charity during a tax year equals $250 or more. The IRS website reminds taxpayers to retain a record of all items donated in kind, regardless of value.
Photographs taken at the time of donation can also be a good way to substantiate the existence of the items, their condition at the time of donation and demonstrate relative value.
A deduction for clothing and household items is only valid if such items are “in good used condition or better.”.
Noncash donations worth $250 or more. A taxpayer who contributes a single monetary donation or noncash items worth $250 or more to a tax-exempt organization must obtain a contemporaneous written acknowledgment from the organization. This must contain: the organization’s name, a description (but not the value) of noncash property contributed, and a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution.
A written acknowledgment is considered contemporaneous if it is obtained by the taxpayer by the date on which the taxpayer timely files his or her original tax return—or the due date including extensions, whichever is earlier—for the year in which the contribution was made.
Noncash donations of $500 or more. Taxpayers who claim deductions for noncash gifts worth more than $500 must satisfy the contemporaneous written acknowledgment requirement and are also required to file Form 8283, Noncash Charitable Contributions, with their return.
In addition, for charitable contributions of noncash property in excess of $500 (other than publicly traded securities), the taxpayer must maintain additional reliable records that contain the manner of acquisition of the property, the date such property was acquired, and the cost basis of the property.
Noncash donations of $5,000 or more. All donations of noncash property with a value of $5,000 or more are subject to the additional requirement that the taxpayer must obtain a qualified appraisal and attach it to his tax return.
Motor vehicles. Special rules exist for donations of motor vehicles, boats and airplanes. Generally, if a taxpayer donates a qualified vehicle with a claimed fair market value of more than $500, the taxpayer can deduct the smaller of the gross proceeds from the sale of the vehicle by the organization or the vehicle’s fair market value on the date of the contribution. The taxpayer may claim the fair market value at the time of contribution in certain cases, for example if the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it or if the qualified organization gives the vehicle, or sells it for a price well below fair market value, to a needy individual in furtherance of the organization’s charitable purpose.