We are a few days from Christmas, and the holiday season is in full bloom. Many people plan on making donations to charitable organizations before the end of the year. However, you want to make sure that organization is a Qualified Charity in order to claim a deduction for the donation on your federal tax return during tax season. Donating to charity is one of the best ways to reduce tax debt–if done properly.
How to Get Proper Credit for Your Contributions
Make sure the entity you are contributing to is a Qualified Charity.
- A taxpayer must donate to a qualified charity to be able to deduct their contributions. Common charities that are generally deductible include your church (also known as a tithe or offering), federal, state, and local governments, nonprofit schools, universities and hospitals, The Salvation Army, American Red Cross, Boy Scouts of America, Girl Scouts of America, etc. Gifts that are definitely not deductible are those to individuals, political organizations, or candidates.
- If you are unsure of the status of a potential charity, visit the Exempt Organizations Select Check on the IRS website. “Exempt Organizations Select Check” is an online search tool that allows users to search for and select an exempt organization and check certain information about its federal tax status and filings. In other words, if it is tax deductible or not.
You must itemize your deductions on your tax return
- To deduct charitable contributions, taxpayers must file Form 1040 and itemize their deductions. To do this, complete “Schedule A, Itemized Deductions.” This form must be filed with your tax return.
If you get something in return, that does not necessarily mean you still can’t take a tax deduction
- Taxpayers may receive something in return for their donation. This includes things such as merchandise, meals, goods or services, including admission to a charity ball, banquet, or sporting event.
- Taxpayers can only deduct the amount of the donation that’s more than the fair market value of the item they received. To calculate your deduction, subtract the value of the item received from the amount of your donation.
There are other types of donations besides those made by check or cash
- For donations of property, instead of cash, you can only deduct the fair market value of the donated item. Fair market value is generally the price you would get if you sold the item on the open market.
- If you donate used clothing and household items, those items generally must be in good condition.
- Special rules apply to certain types of property donations, such as cars and boats.
- To verify if the charitable contribution is deductible, visit Can I Deduct My Charitable Contribution? on the IRS’s website.
If your Donation is over $250, you must have a bank record or written communication from the qualified organization containing the name of the organization, the amount, and the date of the contribution.
- The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. One document from the qualified organization may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.
If you plan on giving a non-cash contribution of more than $500, you must fill out “Form 8283, Non-cash Charitable Contributions” and attach it to your return.
You must fill out Form 8283, Section A if your deduction for a non-cash contribution is for non-cash property worth $5,000 or less.
- If you claim a deduction for a contribution of non-cash property worth more than $5,000, you’ll need a qualified appraisal of the non-cash property and must fill out “Form 8283, Section B.” If you claim a deduction for a contribution of non-cash property worth more than $500,000, you’ll also need to attach the qualified appraisal to your return.
There are special rules that apply to donations of certain types of property such as automobiles, inventory and investments that have appreciated in value.
- The IRS has a link for about everything, and the two that you can use for these types of donations are called Publication 526, Charitable Contributions and another and Publication 561, Determining the Value of Donated Property.
The United States Tax Code is very complex, so it is a good idea to seek advice from a qualified bankruptcy attorney if you find yourself in debt to the IRS or any other taxing entity (i.e. to the state of Alabama).
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