This week we received a question from a taxpayer about how to determine the deductible portion of a silent auction item purchased at a charitable event. While the answer is pretty clear, it reiterated to us just how confusing deducting that charitable contribution/donation can be to a taxpayer.
Charitable contributions made to “qualified organizations” may help lower your tax bill. But what is considered a qualified charity and what type of documentation do you need to keep? Here are our 10 tips to help ensure your contributions not only help the charity, but reduce your tax liability on your tax return.
- First and foremost make sure you are giving to a qualified organization. Also, note that you cannot deduct contributions made to specific individuals, political organizations and candidates. Want to check and see if an organization is qualified? Use this link.
- In general, an individual may deduct contributions to most charitable organizations up to 50% of his or her adjusted gross income (AGI), but that limit is changed to 30% of their AGI for other organizations. When you look up a charity you can click on “deductibility status” and it will tell you which percentage applies to that particular charity.
- To deduct a charitable contribution, you must file Form 1040 AND itemize deductions on Schedule A. Thus, if you are taking the standard deduction, none of your charitable giving will benefit you from a tax perspective.
- Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction record or a written communication from the organization. The communication should contain the name of the organization, as well as the date 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.
- If your contributions of cash or property equal $250 or more, you must have a bank record, payroll deduction record 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. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283 to your return.
- Donations of stock or other non-cash property are usually valued at their fair market value. Clothing and household items must generally be in good used condition or better to be deductible.
- Fair market value is generally the price at which property would change hands between a willing buyer and seller.
- Like our friend who purchased an item at the silent auction, if you receive a benefit (e.g. merchandise, tickets to a ball game or other goods and services), because of your contribution, then you can only deduct the amount that exceeds the fair market value of the benefit received.
- 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.
- If you donate a vehicle, you most certainly will have to fill out Form 8283 as well as get a letter from the organization. However, there are additional conditions that you may have to meet. You can find them here.