Gifts to charity pay off on your taxes

Documenting your donations

When you give goods instead of cash, charities typically provide a receipt to help support itemized claims. But it's up to you -- not the IRS, not the charity -- to assign a precise value to your donation.

Of course, the IRS has rules on how to decide what a donated item is worth: Claim its fair-market value, or what a willing buyer would pay for that item in its current shape -- not what it was worth when it was new.

Accurate valuation of your donations is even more important with the law that household goods be in good or better shape in order to be deducted. Bankrate has some work sheets to help you figure the appropriate amount.

Even though you generally don't have to include substantiation of your gift giving with your return, it's a good idea to keep a record of your deductible donations. So when Goodwill asks, "Do you want a receipt?" say "Yes." If they don't offer, ask for one.

Those receipts will help you meet an IRS requirement, in effect since 2007, that requires you be able to document every gift, regardless of amount. This rule applies to donations of cash or by check, electronic funds transfers, credit card charges and payroll deductions. With these gifts, if the IRS asks, you must show an official record, such as a statement from your bank or credit card company, or a written statement from the charity showing the organization's name and the date and amount of the contribution.

Acknowledgment of your benevolence is necessary when your gifts are large. For a cash contribution (and for tax purposes, cash means actual dollars, checks or credit card payments) of $250 or more, you must get a written receipt of your donation from the qualified organization before you can claim the deduction.

And don't forget, when you donate more than $500 worth of goods to charity, you must detail your generosity and include with your tax return Form 8283, Noncash Charitable Contributions. Take this deduction amount and forget the form, and the IRS could disallow your claim.

In an even bigger giving mood? If you claim a deduction of more than $5,000 for an item, the IRS wants more than just your word. You must have a qualified appraiser provide the value and then attach an appraisal summary (Section B of Form 8283) to your tax return.

Extravagant giving

And while Uncle Sam basically views charitable gifts as a good thing, he has his limits.

In some cases, the IRS won't let you claim all your contributions in one tax year. Generally, your donations cannot be more than 50 percent of your adjusted gross income, although in some instances the limit is 20 percent or 30 percent, depending on the type of property you donate and the type of organization to which you give.

You can carry over your excess contributions for up to five more tax years, but your carry-over amounts still will be subject to the original adjusted gross income limitation rules.

Beginning with the 2013 tax year, the tax value of charitable contributions might be limited for certain individuals. Taxpayers who make more than certain amounts must reduce their overall itemized deductions claim. This limit applies to single filers making $250,000 or more, head-of-household taxpayers earning $275,000 or more, and couples filing jointly with combined income of $300,000 or more.

More details on charitable contribution tax deductions and possible limitations are found in IRS Publication 526, Charitable Contributions, and Publication 561, Determining the Value of Donated Property.


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