When you make charitable donations, be sure they are deductible by following the rules the Internal Revenue Service sets forth. Certain rules apply to donations less than $250, more than $250 but less than $500 and over $500. Regardless of value, every donation must be made to a qualified charity in order for you to deduct it.
Qualified Organizations
A qualified organization is one which has a non-charitable status with the IRS. Specific individuals, and political candidates and organizations are not qualified organizations. If you are not sure if an organization is qualified, ask to see their letter from the IRS. In some cases, the organization may be listed on the IRS Exempt Organizations Select Check. Do not solely rely on this list. You should ask the organization for their IRS letter to ensure that they are a qualified charitable organization.
Donations and ‘Gifts’ in Return
If you receive a ‘gift’ for your donation, you cannot deduct the entire donation. For example, if you are given a pair of tickets to the football game when you donate $1,000, you must deduct the value of the tickets from your donation. If the tickets are worth $300, you may only deduct $700 of the $1,000 you donated.
Non-Cash Property Donations
When you donate items instead of cash, including stock, the items are usually valued at fair market value – that is, what you could sell it for on the day you donate it. If you donate household goods and clothing, they must be in good condition. Some special rules apply to that caveat, including rules for vehicles and antiques that are not necessarily in the best of condition.
- If you have a coffee maker that you paid $25 for three years ago, and it still works perfectly, and is in good condition, you may claim the fair market value of the coffee maker. In all cases, that would be less than $25 – probably around $8 for an inexpensive coffee maker.
- If you have an old organ that was made in the 1800s and the bellows do not work, the foot pedals need to be recarpeted and it needs to be restrung, it might not be worth much. However, since it’s an antique, it probably has some value to it, even in poor condition. Items such as this should be appraised. You may be able to deduct the appraised value rather than what it is worth on the day you deduct it, which may be next to nothing since it’s in poor condition.
Keeping Receipts
While you do not have to turn in receipts when you claim a deduction for a donation, you must have a receipt on hand for every qualified donation you are claiming. The receipts should be on hand should you have an audit. It’s also a good idea to keep receipts as you may not remember all of the donations you made throughout the past years if you make several.
Additionally, if a donation has a value of over $250, you must have a bank record, a written acknowledgment, such as a receipt from the charity, or a payroll deduction showing the donation. For non-cash donations valued over $500, you must complete IRS Form 8283 and attach it to your return.
Claiming Donations
If you claim donations, you must itemize your deductions on Schedule A and file form 1040. You will not be able to use 1040EZ. If your deductions are less than the standard deduction, you may claim the standard deduction instead of itemizing your deductions. Furthermore, if you are donating one item or similar items that are valued at $5,000 or more, you must complete Section B of Form 8283.
Also, be sure to know how much your charitable write-off is limited to. Depending on your situation, it may be limited to as little as 20 percent of your adjusted gross income (AGI) or up to 50 percent of your adjusted gross income. You may find your AGI at the bottom of the first page of your 1040. If your contributions exceed the AGI limit for your situation, you may be able to carry them over for up to five years.
Contact France Law Firm
Even if you have an accountant, you may want to retain the services of a tax attorney if your taxes are complicated. Contact France Law Firm to set up a consultation regarding your tax situation.
