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Tax Rules for Charitable Contributions

Advice for year-end giving.

Many taxpayers look to lower their tax bill as the year winds down. One of the more popular ways to do that is through charitable contributions. If your goal is a legitimate tax deduction through a cash or non-cash donation or donations, then read on for some highlights of the rules.

You may claim a charitable donation deduction only if you itemize on IRS Schedule A. In other words, if you do not itemize your deductions, then you normally do not realize a tax benefit. For more on taking the standard deduction (based on your filing status) vs. itemizing, read here. In addition, you cannot deduct contributions made to specific individuals, political organizations or candidates.

Be sure you are giving to a qualified public charity. The IRS has a useful feature called Select Check that can help you in that regard. Select Check allows you to select an exempt organization (charity) and check certain information about its federal tax status and filings.

Contributions made on or before Dec. 31, 2012 are considered deductible for the 2012 tax year. Also, checks mailed or donations charged to a credit card by Dec. 31, 2012, are generally considered to be deductible in 2012.

If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.

Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations. (Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.)

Keep a paper trail such as receipts and paperwork for substantiation. If you claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization.

For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution and the amount given.

Finally, if your total deduction for all noncash contributions for the year is more than $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

IRS Publication 526, Charitable Contributions—linked above in several spots—is an excellent resource for all the details involved in charitable giving. Also, check out our YouTube videos on the subject as well: Fair Market Value of Charitable Contributions and Charitable Contributions.

—Courtesy of Raphael Tulino, IRS spokesperson for Southern California and Nevada.

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