J. William Seabrooke CPA P.C.

The comments in this article are related to individual taxpayers.  In addition to requirements set forth in Publication 526 (“Charitable Contributions”) businesses  should also review the provisions of Publication 542 (“Corporations”), including page 13 of the latter  publication for annual contribution limitations.

The first step in this process should include a review of Publication 78 (“Approved Charities”) and Publication 526 to determine if the organization to which you have donated, or plan to donate to, is an approved “charitable organization.”   Be sure to keep accurate records and supporting documentation as required by the regulations.

Additonal considerations and requirements are provided in the publications for:

• “Acceptable” organizations and “unacceptable” organizations (Table 1, page 2 of Publication 526).
• Appreciated capital assets (stocks, bonds, jewelry, stamps, coins, art etc)  tax savings can be achieved if you meet the requirements and donate these assets using their fair market value.  You do not have to first sell the asset, pay the capital gains tax, and then donate the cash.  Be sure to review the “Unrelated Use” requirement on page 12.
• There are additional special rules and requirements if you donate a vehicle, boat or airplane (pages 8-11).
• The value of your time, regardless of the amount and value, is not deductible.
• There are limitations on the total amount of all charitable donations that can be made each year.  It is based on your “Adjusted Gross Income” and the type of donation.  The percentage limits are 20%, 30%, and 50%  See pages 13-15.
• If you have exceeded the annual limitation for any tax year, the unused amounts can be carried forward in your tax return for the next five future years, if necessary.

I have observed a recurring situation for some clients in which they can not take a tax deduction for a contribution due to the tax laws.  This situation occurs when someone at work, church etc is in need of assistance.  Friends and family step up to the plate and come to the rescue.  However, the recipient is not an approved charitable organization and the donations can not be claimed.  Solution – donate to an approved charitable organization in that person’s name and have the charitable organization deliver the donations.     

Eight Tips for Deducting Charitable Contributions

Charitable contributions made to qualified organizations may help lower your tax bill. The IRS has put together the following eight tips to help ensure your contributions pay off on your tax return.

1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
3. 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.
4. 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.
5. 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.
6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
7. To 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 showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
8. 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.

For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining value, refer to Publication 561, Determining the Value of Donated Property. These forms and publications are available at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Search for Charities or download Publication 78, Cumulative List of Organizations
• Publication 526, Charitable Contributions (PDF 178K)
• Publication 561, Determining the Value of Donated Property (PDF 101K)
• Form 1040, U.S. Individual Income Tax Return (PDF 176K)
• Schedule A, Itemized Deductions (PDF)
• Form 8283, Noncash Charitable Contributions (PDF)
• Instructions for Form 8283, Noncash Charitable Contributions (PDF)