Helpful Tips for Donation Tax Deduction

Hello, everyone! At BTL & Company, P C, Tax  & Accounting, we help clients every day to save money on their taxes and get the most out of their tax returns. If you’re wondering what one of the best ways to feel good about yourself and save on your taxes, look no further than charity. By donating to charity, you can qualify for donation tax deductions, and can save huge amounts when it comes time to file your taxes. In this article, we’ll take a look at the rules and helpful tips covering income tax deductions for charitable contributions by individuals.  At the end, we’ll provide some information so that you can Find a Tax Professional for Donation Tax Deductions.

Qualified Organizations

For making charitable contributions that you can deduct, you must donate money or property to qualified organizations. There are quite a few requirements that determine if the charity is qualified, which are under section 170(c) of the Internal Revenue Code. According to the IRS, these types of qualified organizations include:

1. A state or United States possession (or political       subdivision thereof), or the United States or the District of Columbia, if       made exclusively for public purposes;
2. A community chest, corporation, trust, fund, or       foundation, organized or created in the United States or its possessions,       or under the laws of the United States, any state, the District of       Columbia or any possession of the United States, and organized and       operated exclusively for charitable, religious, educational, scientific,       or literary purposes, or for the prevention of cruelty to children or       animals;
3. A church, synagogue, or other religious organization;
4. A war veterans' organization or its post, auxiliary,       trust, or foundation organized in the United States or its possessions;
5. A nonprofit volunteer fire company;
6. A civil defense organization created under federal,       state, or local law (this includes unreimbursed expenses of civil defense       volunteers that are directly connected with and solely attributable to       their volunteer services);
7. A domestic fraternal society, operating under the lodge       system, but only if the contribution is to be used exclusively for       charitable purposes;
8. A nonprofit cemetery company if the funds are       irrevocably dedicated to the perpetual care of the cemetery as a whole and       not a particular lot or mausoleum crypt.

As with all things financial, be sure to investigate which charitable organization you wish to donate to. It is always a wise decision to Find a Tax Preparer that understands your intentions and can investigate the validity of these organizations.

Timing of Your Charitable Contribution

As with most tax deductions, your contributions must be paid in cash or property before the end of the tax year to be valid as deductible. This remains true if you use the cash or accrual method for your Accounting.

Deductible Amounts

Donating property or assets is an excellent way to qualify for donation tax deductions. The way to determine how much you can be reimbursed is that you are generally entitled to the fair market value (FMV) of the item. If the FMV of the property has appreciated in value, you may have to make adjustments on your tax filing. If you’re looking for information on the particulars of determining the fair market value, you can find them in Publication  561, Determining the Value of  Donated Propertyprovided by the IRS.

Deduction Limits

Generally speaking, contributions to qualified charitable organizations may be deducted up to a whopping 50% of the adjusted gross income (AGI) without considering net operating loss carrybacks.

As a general rule, the 50% deduction limit applies to:

• all public charities (known under code  PC),
• all private operating foundations (known under code  POF),
• certain private foundations that distribute the contributions they receive to public charities and private operating foundations within two and a half months following the year receipt, and
• certain private foundations the contributions to which are pooled in a common fund and the income and corpus of which are paid to public charities.

Some certain private foundations, veterans organizations, cemetery organizations, and fraternal societies do have limits of up to 30% AGI (also without carrybacks), so it makes sense to do your research beforehand to maximize your deduction or be aware of the reduced benefits. The 30% limitation applies to:

• private foundations (known under code PF),
• other than those previously mentioned that qualify for a 50% limitation, and
• to other organizations described in section 170(c) that do not qualify for the 50 percent limitation, such as domestic fraternal societies (code LODGE).

In addition, there is a special limitation that applies to certain gifts of long-term capital gain property.  For more information, consult Publication  526, Income Tax Deduction for  Contributions.

Foreign Organizations

Foreign organizations may be a bit confusing to determine whether they qualify as a charitable organization or not. For instance, domestically-formed organizations carrying on activities in foreign countries are valid if they meet the legal prerequisites for charitable donations.  These organizations are essentially treated in the same fashion as any other domestic organization in regard to deductibility limitations discussed above. As a general rule, most foreign organizations DO NOT qualify as a charitable organization and hence are not able to qualify as deductions. * * *

As you can see, merely dumping off your old items to a charity is just the beginning of the process to earn tax deductions. And those deductions can be huge! At BTL & Company, P C, Tax  & Accounting, we believe that those that give should also receive in equal measure.