The Tax Deduction For Charitable Donations
By: William Perez - March 23, 2018
Even the Internal Revenue Service thinks it's better to give than to receive — at least the IRS gives you a tax break for giving. Donations to qualified charities are considered tax deductible expenses so they can reduce your taxable income, lowering your tax bill.
- You must actually donate cash or property. A pledge or promise to donate is not deductible until you actually pay.
- You must contribute to a qualified tax-exempt organization. Charities will let you know if they have 501(c)(3) tax-exempt status, but some organizations, including churches and other religious organizations, are not required to obtain 501(c)(3) status from the IRS. They count as qualified charities regardless, as do trusts and non-profit volunteer fire companies.
- You must meet several recordkeeping requirements. It includes saving canceled checks, acknowledgment letters from the charity and appraisals determining the value of donated property.
Keeping Records of Your Donation
- Make a list of the items you're giving away. You'll need these details for Form 8283.
- Note the condition of each item and arrive at a value. The IRS will allow a deduction for any item that's in good working condition or better. In other words, don't bother to claim a deduction for that old TV in your basement that hasn't worked in years, even if it just needs a single new part. At the very least, you must have it valued in its current condition without the new part. You can use valuation guidelines provided online by the Salvation Army or Goodwill for common items such as clothing, small appliances, and other household goods, Save the price tag and/or store receipt to prove the item's value if it's brand new.
- You can claim a deduction for food and groceries, too. You can deduct the cost if you donate groceries to a charity as well. Just be sure to get a written acknowledgment of your donation and keep your grocery store receipt to prove the prices of the items.
- Consider taking pictures of your donations. Having a picture handy of what you donated can be useful, especially if you're donating a lot of items. It isn't technically a requirement, but it can't hurt in the unlikely event that your return is audited. Just snap away on your phone, then send the pictures to your hard drive and save them.
- Prepare your own receipt to prove the donation. If you write it yourself ahead of time, you can simply have it signed when you drop off your items. This way you can rest assured that the receipt is correct and it includes all the information you need.
- Obtain a written appraisal if you're donating property worth more than $5,000.
- Political parties, political campaigns or political action committees
- Gifts donated to individual people
- Contributions to labor unions, chambers of commerce or business associations
- Contributions to for-profit schools and hospitals
- Contributions to foreign governments
That still allows for a lot of charitable giving to whittle away at your tax liability if you want to itemize.
Article Source: The Balance
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.