Giving to your favorite charity can pay off at tax time as long as you know and follow IRS rules.
The first requirement is that you itemize. If you claim the standard deduction, which most taxpayers do, your generosity will benefit your favorite charity, but it won't help reduce your tax liability.
Next, make sure you give to an IRS-qualified charity. A running list of authorized groups is contained in IRS Publication 78, with a searchable version on www.IRS.gov. You also can verify an organization's tax-exempt status by asking to see its IRS authorization letter, or by calling the IRS toll-free at 1-877-829-5500.
You also need to be aware of potential limitations. In most cases, as long as your total donations don't exceed half of your adjusted gross income, you're OK. If you plan to contribute unusually large amounts, check with your tax adviser and the charity about any possible tax implications.
Now to the actual giving.
Documentation rulesYou can contribute cash or goods. In tax talk, "cash" includes not just currency, but also checks, electronic transfers, money orders and charge payments.
The tax code now requires that all monetary donations be substantiated by a bank record or written receipt from the charity. A canceled check will serve as the requisite record; so will a credit card statement. Many charities already provide receipts for monetary gifts, regardless of the amount. If your favorite nonprofit doesn't automatically do so, ask for one when you donate. For donations of $250 or more, you must get an official receipt.
You don't have to send in the documentation with your return, but if the IRS asks and you can't produce acceptable verification, your gift could be disallowed.
If your contribution entitles you to merchandise (for example, the CDs and such that PBS stations offer during pledge periods) or admission to a special event (such as a charity ball), you can deduct only the amount that exceeds the fair market value of the benefit you receive.
Noncash contributionsRecord-keeping requirements for noncash gifts depend on the value of the contributed goods. The major consideration here is donation of items valued at more than $5,000. For these higher-priced gifts, you generally must obtain a written appraisal of the property.
In addition to specific documentation rules, the IRS has certain deduction and filing requirements for donated goods.
You must fill out Section A of Form 8283 if your total deduction for all noncash contributions is more than $500. When your donated property amount exceeds $5,000, in addition to an appraisal, you also must complete Section B of Form 8283.
As for the property itself, tax law now requires that any donated household items be in good or better condition. If they're not, the IRS could disallow your contribution. The key here is to use the true fair market value of your gift. There are several software programs that can help you figure this out, as well as IRS Publication 561. Also check online auction sites for the going price for an item you plan to donate.
The condition-of-goods clause was added in 2006 to eliminate two problems:
- Taxpayers using charitable groups as de facto garbage dumps.
- The loss of government money because of overvalued donations.