When preparing your Federal tax return, do not forget to count your gifts to charity. Your giving attitude can do more than make you feel good for helping others. When tax filing time arrives, your gifts also might help you lower your tax bill since they may be deductible donations.
There are many ways to give, the most common being cash donations. In the Internal Revenue Service’s dictionary, cash includes not just currency, but also monetary amounts donated by check, credit card and cell phone texts. When you do donate money, be ready to deal with IRS documentation rules.
The one other thing to remember is your philanthropic timing. So your donations will count when you file your return in April, make sure your charitable gifts are made by December 31 of the PREVIOUS year.
‘Good’ Household Goods
Many charities are happy to accept used clothing and household goods, and you are allowed to claim the fair market value of those items as a tax deduction. But to make sure that the value was at least somewhat valuable, a law was enacted in 2006 that requires any donated household goods be in good or better condition.
Now the IRS can deny deductions for items that are deemed of “minimal monetary value.” When your total amount of donated articles — or as the IRS calls them, noncash gifts — exceeds $500, you have to file a Form 8283 “Noncash Charitable Contributions” with your tax return, detailing your generosity.
Gifts of Less Than $250
To deduct a Noncash donation worth less than $250, you need a receipt with:
- the charitable organization’s name
- the date and location of the contribution, and a description of the property (in just enough detail to identify the items).
If you are giving securities, you should also document the name of the issues, the type of security, and whether or not it is publicly traded.
Gifts of More Than $500
If you make a total of more than $500 worth of Noncash gifts in a calendar year, you must file Form 8283, Noncash Charitable Contributions, with your income tax return.
You have to fill out only Section A of the Form 8283 if:
- the gifts are worth less than $5,000, or
- you are giving publicly traded securities (even if they are worth more than $5,000).
Gifts of More Than $5,000
If you give away property worth more than $5,000 ($10,000 for stock in a closely held business), you will probably need to get an appraisal. (The information goes in Section B of Form 8283, Noncash Charitable Contributions, which must be signed by the person who appraises your gift and the charity as well as by you.) An appraisal is required whether you donate one big item or several “similar items” that have a total value of more than $5,000. For example, if you give away a hundred valuable old books, and their total value is more than $5,000, you will need an appraisal even though you might think you are really making a lot of small gifts. The rule applies even if you give the items to different charities.
Your appraisal must be from someone the IRS considers a “qualified appraiser.” If you do not, you will not be able to claim the deduction. The appraiser must sign the Form 8382.
Special Rules for Donating Vehicles
Many charities actively solicit the donation of used cars and other vehicles. To claim a deduction of $500 or more for a vehicle you donate, you will need a written receipt from the charity issued at the time you make the gift or shortly thereafter.
How large a donation you can claim depends on what the charity does with the vehicle. If it promptly sells the car without using it or substantially fixing it up, you can deduct the amount the charity receives for the car or its fair market value when you donated it, whichever is less. If the charity does use or improve the car (or gives it away as part of its charitable activities), you can deduct the fair market value at the time of the contribution. The charity typically provides this information on IRS Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes.
Here are some additional tips from the IRS:
Charitable contributions made to qualified organizations may help lower your tax bill. The IRS has put together the following Eight tips to help ensure your contributions pay off on your tax return.
- If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
- To deduct a charitable contribution, you must file Form 1040 Individual Tax Return and itemize deductions on Schedule A.
- 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.
- 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.
- 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.
- 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, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
- 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 and 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. If your total deduction for all Noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
- Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
If you have any questions, contact a qualified attorney at JV LAW GROUP. Call us today at (714) 752-3270.
