As year-end approaches, many taxpayers consider last minute donations; merging their desire to do good with their desire to lower their tax burden.
Generally, if you itemize your deductions, making charitable contributions can decrease your tax bill. Here are some important rules to know.
Charitable contributions of clothing and household items
Clothing and household items donated to charity generally must be in good used condition, or better, to be tax-deductible. If the value is greater than $500, you don't need to meet this requirement if you include a qualified appraisal of the property.
Get a receipt that includes the name of the charity, the date of the contribution, and a reasonably detailed description of the donation for all donations of property. If a donation is left at a charity's unattended drop site, keep a written record of the donation that includes this information. Records should include the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
Donations of money include those made in cash or by check, electronic funds transfer, credit card or payroll deduction.
A taxpayer must have a bank record or a written statement from the charity to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements.
Bank or credit union statements should show the name of the charity, the date and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
For payroll deductions, the taxpayer should retain a pay stub, a W-2 or other document from the employer showing the total amount withheld for charity.
If you donate cash or property worth more than $250, you must get a written receipt from the charity and an acknowledgment which includes a description of the items contributed. One statement containing all of the required information may meet both requirements.
Only donations to eligible organizations are tax-deductible. The IRS has an online search tool which lists most organizations that are eligible to receive deductible contributions. Religious institutions and government agencies are generally eligible even if they are not listed in the IRS database.
Contributions are deductible in the year made. That means donations charged to a credit card before the end of 2014 are deductible in 2014, even if the credit card bill isn't paid until 2015. Also, checks insurance mailed on or before Dec. 31, 2014 are deductible for 2014.
Individual taxpayers must itemize their deductions on Schedule A to claim deductions for charitable contributions. If the taxpayer chooses the standard deduction, they cannot claim a tax deduction for charitable gifts. A taxpayer will have a tax savings only if the total itemized deductions exceed the standard deduction.
Form 8323 is required if the taxpayer's total noncash gifts exceed $500. If a taxpayer donates an automobile, boat, or airplane with a value greater than $500, the amount of the deduction will usually be the amount received when the property is sold by the charity and the charity is required to provide Form 1098-C to the donor.