Charity and related donations are strongly encouraged by a number of parties in life including employers, your local church, non-profit causes, and even schools. And such donations, whether as money or as property, are deductible from one’s federal taxes each year. However, just donating is not enough. Taxfilers should make sure to keep certain documentation and follow certain procedures to be able to defend charity deductions claimed.
First off, the group or organization that the donation goes to needs to be a recognized charity. These organizations are frequently tracked as Revenue Code 501(C)(3)-certified organizations. A good question to ask before giving a donation is to ask the organization if it is listed already by the IRS as a qualified organization. You can also independently check this status under IRS Publication 78 – Cumulative List of Organizations.
Second, keep in mind that charity deductions are only valid on an individual’s tax filing under IRS Form 1040, Schedule A. Types of deductions allowed include the usual culprits of direct cash, clothes, personal property, vehicles, boats, and similar.
Not surprisingly, there is a bit of a nuance with donations that involve the donator getting something back. This is usually the case with tickets to events that area advertised as tax-deductable. Under the tax rules, the deductible amount is only the value of what was given that is more than what was received. So, if you give a donation by purchasing something, the item has to be worth less than what you gave to be able to claim any of it. Further, you have to have a methodology as how you arrived at that difference that is claimed.
Documentation is critical for the taxfiler to justify his or her deduction claims for charity. The best type of documentation are receipts for cash and goods donated. This can be in the form of an actual, signed receipt from the charity organization or in the form of a letter specifically referencing the donation from you on a specific date and signed by the organization’s representative. An acknowledgement letter with all the critical information and whether you received anything in return for the cash donation is required for taxes if your donation was more than $250. Additionally, cash donations should be backed up with cancelled checks and/or bank statements showing the actual transaction occurring. For those donating via their paycheck as pre-tax donation, the paystub records reflecting the payroll deduction should be kept on file. For property donations worth over $500, the donator needs fill our IRS Form 8283-Noncash Charitable Contributions and include with tax filings at the end of the year.
Charitable donations for a tax year are also limited to the tax year they occurred. In other words, there is no carryover to a later tax year if you forgot to claim in the one year eligible on your taxes. For credit card charges, you want to keep on file the card statement that shows the dates the charity charge occurred to clearly document it fell within the correct tax year of your claimed deduction.
Both IRS Publication 526-Charitable Contributions, and Publication 561-Determining the Value of Donated Property can provide helpful information on donations, and both can either be downloaded from the IRS website at IRS.gov or by calling 800-TAX-FORM (800-829-3676).