Tax Season Tips
Tax Tips about Deducting Charitable Contributions
When you give a gift to charity that helps the lives of others in need. It may also help you at tax time. You may be able to claim the gift as a deduction that may lower your tax. Here are some tax tips you should know about deducting your gifts to charity:
You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates.
To deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A Itemized Deductions, with your federal tax return.
Benefit in Return
If you get something in return for your donation, your deduction is limited. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.
If you gave property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.
Clothing and Household Items
Used clothing and household items must be in at least good condition to be deductible in most cases. Special rules apply to cars, boats and other types of property donations.
You must file. Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.
Records to Keep
You must keep records to prove the amount of the contributions you made during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction.
Donations of $250 or More
To claim a deduction for donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.
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.
The IRS’s rules for substantiating the value of noncash contributions are many and complex; and the requirements increase with the value of the donated property.
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.
See Publication 526, Charitable Contributions, for more on these rules.