OPINION: Wondering if you can write off a donation? By Morgan Quinn, GOBankingRates (TNS) Making a donation to a charity is a great way to fill up on feel-good energy, but there might be an additional benefit, too: tax savings. Donations made to qualifying charitable organizations can reduce your taxable income, which reduces your overall tax bill. But dont get too excited just yet: Not all donations can be deducted and not all charitable organizations qualify. A qualifying charitable organization is a nonprofit group that is approved by the IRS. In most cases, these nonprofits are charitable, religious or education organizations, or volunteer groups. If you arent sure if the charity of your choice qualifies, the IRS has a search tool that allows tax filers to enter the name and location of an organization and instantly see if it makes the cut. If it does, great news. Your contribution could be tax deductible. In order to get the tax deduction, you must give to a qualified organization. Contributions made to specific individuals, political organizations and candidates dont count. Charitable contributions are filed using form 1040, and you can itemize the deductions on Schedule A. So, if you made three donations that tax year to three separate qualifying charities, you would use the total amount on 1040 and then list them separately on Schedule A. Cash donations to a qualifying charity are tax deductible, but if you received a benefit in exchange for your donation, like swag, tickets to an event or other material goods, the rules are a little different: You have to subtract the fair market value of the benefit from your deduction. There are general rules for determining the fair market value of the benefit, but it is generally the price of the property that 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. So, lets say you got a pair of baseball tickets for donating $100 to your favorite charity. And lets say the seats werent great - maybe they are in a section where the tickets normally go for $30 on the street. You would deduct the fair market value of the tickets ($60) from the deduction, which would lower your tax benefit to $40. Now, lets say the tickets were nicer - maybe they have a $50 street value. Then it would be a wash - the deduction would not exceed the fair market value of the goods. Non-cash donations This is one of my personal favorite deductions - I regularly purge my closets and donate my gently used clothing to a local, qualifying charity that helps homeless women find work. I feel good knowing my donation is helping these women dress for success, and the additional tax benefit is just the icing on the cake. Donations like this are considered non-cash property and are valued at the fair market value of the property. Non-cash property can cover a variety of goods, including stock, but any clothing or household items must be in good condition to be deductible. So, you cant just drop off your old, broken stereo and deduct $200 because thats what a restored one is selling for online. Sorry, but your beat-up stereo isnt in good condition, and its definitely not worth $200. What records to keep To deduct any monetary contribution you must keep records, regardless of the amount. You can use bank or payroll statements or a written communication from the organization that includes the date and amount of the contribution as tax receipts. If any cash or property you are donating is worth $250 or more, you will need two documents: First, a bank or payroll deduction record or a written acknowledgement from the qualifying organization showing the amount of the cash or a description of any property contributed; and second, whether the organization provided any goods or services in exchange for the gift. If your total deduction for all non-cash contributions is over $500 for the year, you must complete and attach IRS Form 8283 to your return. Taxpayers who have donated more than $5,000 will also have to complete Section B of Form 8293, and might need to secure an appraisal from a qualified professional. When in doubt, consult a tax professional to make sure you are following the proper procedures when deducting charitable donations. You dont want to lose all that feel-good energy to an audit. Morgan Quinn writes for GOBankingRates, a leading portal for personal finance news and features, offering visitors the latest information on everything from interest rates to strategies on saving money, managing a budget and getting out of debt.
Posted on: Tue, 27 Jan 2015 14:30:01 +0000
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