Tax Strategies & Credits

Tax Tips: Good Records Key to Claiming Gifts to Charity

by
Marge Cook
on
5/12/2016
Tax Tips: Good Records Key to Claiming Gifts to Charity

If you're an American taxpayer who wants to make the most of the various tax deductions that the government makes available, it is essential that you take special care with your record keeping. Charitable contributions are the best examples of this, and especially those that are taken for donated vehicles and for contributions of $250 or more.  

The tax code specifically requires not only that written documentation is provided for these types of contributions, but also that the taxpayer must have this documentation in their possession in order to claim a charitable contribution deduction on their taxes. Though there is no requirement to submit these receipts along with the tax return, they must be in hand and available in case the IRS needs verification.

Rules You Need to Know

If you are considering making a charitable contribution, there are some things you need to know:

Double Check the Organization’s Qualifications

There are many worthy organizations that seek donations, but as a taxpayer you need to make sure that the one that you want to support is qualified as a charity. The government has strict requirements for what makes an entity eligible to be classified as able to receive deductible contributions, and makes the list of those that meet their criteria available on their website, www.IRS.gov. The site provides an online tool called Select Check where you can easily search for the name of a specific organization to see whether gifts will qualify as tax deductible. You can feel confident in making a contribution to any government agency, church, synagogue, mosque, or temple, even if it is not on the list.

Standard Deduction? No Charitable Deduction

Taxpayers are frequently faced with the question of whether to itemize or to take the standard deduction on their taxes. Claiming charitable contributions is a tax advantage that is only available to those who itemize on Form 1040 or 1040EZ, and only offers a savings if the total of all of the possible deductions that can be taken are greater than what the standard deduction provides. These deductions include state and local taxes, charitable contributions, and mortgage interest. Form 1040 Schedule A provides a worksheet that can be used to calculate whether you are eligible to itemize and whether it will be of greater benefit than taking the standard deduction.

Timing of Charitable Contributions

Charitable contributions are counted in the year that they are made, not the year that they are paid. If you wish to make a charitable contribution at the end of the year, there is no need for concern as to when the check clears or credit card is paid. 

Categories of Giving

There are a number of different categories of giving, and important rules and exceptions to these rules, that you need to understand in order to make sure you address charitable contribution deductions correctly. 

Cash Contributions

There are many ways that you can make cash charitable contributions. You can have it deducted from your payroll, pay by cash or check, have electronic funds transferred out of your account, or use a credit card. In all cases, it is required that you have either a written statement from the organization or a bank record of the transaction in order to claim the deduction on your tax return. The statement should include how much you gave, when you gave it, and the charity’s name. The same information must appear on bank records, whether they are in the form of a statement from the bank, credit card or credit union, or a canceled check. This is true regardless of the amount of the contribution. For contributions made via payroll deduction, the taxpayer’s documentation can consist of a W-2 wage statement, a pay stub, or any other employer-provided statement indicating the details of the withdrawal. 

Noncash Contributions

For those who donate to charities through noncash contributions of property of over $500, there is a special form — Form 8283 — that must be used in addition to Schedule A. 

Donating Household Items and Used Clothing

Many people donate their gently used items of clothing, furniture, appliances, linens, electronics and other household items to charitable organizations. In order to take a deduction for these contributions, the items must be in good condition. In cases where the taxpayer seeks a deduction over $500 on an item of clothing or household item, they must submit a qualified appraisal confirming this value. This appraisal should be attached to the tax return. 

Vehicles

When a taxpayer wishes to donate a vehicle, whether an automobile, boat or airplane, they are required to provide all appropriate documentation for the donation to their tax return. This documentation consists of either Form 1098-C or a statement that the charitable organization provides detailing the contribution. If the value being claimed for the deduction exceeds $500, that value is not permitted to exceed the gross proceeds from the vehicle’s sale.

Giving to a worthy charity is always a good thing to do. Just make you sure you are leveraging your giving in the way that also gives you a tax advantage.

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Marge Cook

Marge Cook

Based in Rhinelander, WI, Marge Cook has been a Tax and Accounting professional for 8 years. She specializes in small businesses and is certified as an Accounting Services Professional, Professional Bookkeeper, Professional Tax Preparer, and a QuickBooks ProAdvisor. Prior to starting Custom Accounting Services, she worked in Management at both McDonalds and Walmart.

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