Throughout the year, many of us contribute to various charities, providing our time, money and various goods to assist the charity in their mission. By tracking these donations and making sure that you have documented receipts from the charity, you may also be able to benefit in terms of deductions on your tax return. Working with your tax professional or accountant, such as Johnson, Johnson & Associates, Inc in Yeadon, PA, you can determine if any of your donations are eligible for deductions. Here are eight tips to remember when deducting your charitable donations.
1 – Qualified Organization – In order to get a legal deduction, you need to contribute to a qualified charitable organization. This organization will typically have non-profit status with the IRS. However, you cannot deduct contributions made to specific individuals, political organizations and any specific candidates within any particular campaigns.
2 – Itemize – To receive a deduction for charitable donations, you will need to use a Form 1040 and you will need to itemize your deductions. Unlike some deductions that are available whether you itemize or not, the charitable donations will need to be on an itemized tax return to be used to reduce your tax liability.
3 – Benefits Received – If you received a prize or merchandise for your donation, then you will only be able to deduct the amount of your donation that exceeds the fair market value of what you received from the charity. However, if your donation does not exceed the fair market value, you will be unable to deduct anything for your charitable donation.
4 – Stock or Non-Cash Donations – If you donate stock or other non-cash property, you can usually receive the fair market value of that property. This would also apply to clothing or household goods that are in good used condition. However, there are special rules for any vehicle deductions, so you will want to work with your accountant to determine if your vehicle donation qualifies.
5 – Fair Market Value – This is generally defined as the price at which property would change hands on the regular market between a buyer and seller with both of them not being pressured to buy or sell, while at the same time, having a reasonable knowledge of the facts regarding the product or service being sold. As a result, you will need to have the knowledge of how much your items would be worth on the open market prior to donation. You may use a website to verify that amount if necessary.
6 – Maintain a Record – If you are making any type of charitable donation, you need to be sure that you keep accurate records of the donation. This means keeping a bank record, receipts for the donation from the charity, or other written communication from the organization that verifies your donation. It should also list the fair market value, if possible, for any of the donations. If you have made donations via a text message to a charity, then you need to have a telephone bill that shows the name of the receiving organization, the date of the contribution and the amount given. Otherwise, you may need to request an email receipt with that information.
7 – Donations Over $250 – For donations over $250 or higher, you must be sure to have a bank record, payroll deduction records, or a specific written acknowledgement from the charity that gives a description of what was donated, the amount the donation was worth and the date. If the organization provided any gifts or services for the donation, this should also be listed on the documentation from the charity. If a donation was made with cash and property, then one written document could satisfy the proof aspect for both donations as long as they equaled together over $250. If your total deduction for non-cash items that were donated totals more than $500, you will also need to have your tax professional complete the IRS Form 8283 and attach it to your Form 1040. In addition, you will need to have all your necessary documentation to back up your donations throughout the year.
8- High Value Donations – Any donations made over $5,000 means that you will also need to complete Section B of the Form 8283 and you may also need to get an appraisal of the item to determine its value.
As you can see, charitable donations are a viable deduction, but they require some recordkeeping to enjoy the benefits on your tax return.
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