on February 18, 2016
Whether you are giving to a religious organization, for medical research to find a cure or to save the elephants, you need to remember certain guidelines if you expect to take a deduction on your tax return. You can make your donations in cash or by check, credit card or payroll deduction. But where a donation is made—PROOF is required. The IRS is not going to take it—you’ll excuse the expression—on faith that you dropped $10,000 into the collection box in cash. The burden of proof for every deduction falls to you, the taxpayer.
Make sure the organization to which you are giving is a qualified charity. You can check the IRS website Select Check ( hyperlink to https://www.irs.gov/Charities-%26-Non-Profits/Exempt-Organizations-Select-Check ). They list most organizations that are eligible to receive deductible contributions. If you’re giving to a religious or governmental organization, you’re pretty safe in taking the write-off.
If you made a year-end gift on your credit card, you can take the deduction in the year you hit SEND—not when you paid the bill. The same holds true for checks mailed before the end of the year. As long as you mailed it before the turn of the year, the deduction is yours to take, regardless of when the charity received or cashed your check. For those always looking for the edge, mailing the check in the new year with a pre-dated check is liable to get you caught. If the charity receives the donation on February 10th and processes it, it is unreasonable to assume you mailed it before the deadline.
The deduction for charitable donations can only be taken on Schedule A of your 1040. Which means if you cannot itemize deductions, there’s no place to take the deduction. Instead, the Standard Deduction—for those who cannot itemize—is assumed to include a “standard” amount of charitable donations. So if you cannot itemize, you cannot take advantage of any further charitable deduction.
There are special rules when it comes to donations of property, including clothing or household items. The IRS website provides details for taxpayers who unload their old clothes, used sofas, cars, boats and other items. You must keep a receipt from the charity, date of the contribution and a detailed list of items donated and the fair market value of the property. It’s not uncommon for taxpayers to get creative with the value of their 30 year old Gucci leather belt, but if your assessment crosses the threshold of reasonableness, expect to get called out.
If you wind up handing over your car or boat to an organization, the deduction is usually limited to the gross proceeds of the sale of that asset. So if you have a junker that might have a blue book value of $3,000, but it brings in only $500 in a sale by the charity, you can take only a $500 deduction. Remember, written documentation is a must.
Gifts to charities of appreciated stock, artwork and other appreciated assets (building, land, etc.) can be pretty complicated. It’s best to work these transactions through with a qualified CPA who can explain these rules before you leap in and sign over the family Renoir.
Helping others is always a good thing—the feeling of providing aid to great causes touches our humanity. Getting a deduction for your generosity is a sweetener that also gives back to the giver in a financial way—just so long as you follow the rules.
by Michael F. Kay