What You Need to Know Before Making Your Year-end and Holiday Charitable Contributions
As you get ready to make your holiday or year-end charitable contributions, the IRS wants you to know that there may be a few things you want to check before you do so.
Rules for Charitable Contributions of Clothing and other Household Items
Clothing and other household items that you donate to charity must be in at least good condition or better to be tax-deductible. A piece of clothing or household item in which you get a deduction of $500 or more does not have to follow this rule if you include a qualified appraisal of the item with your return. Any gifts worth $250 or more requires you to get written acknowledgement from the charity, which must include a description of the items contributed.
Guidelines for Monetary Donations
For donations of money by cash, check, electronic funds transfer, credit card, or payroll deduction, the rules are a bit tighter. Regardless of the amount donated, you must have a bank record or a written statement from the charity that includes the name of the charity, the date, and the amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. These statements should show the name of the charity, the date, and the amount paid, while credit card statements should also show the transaction posting date.
For payroll deductions, you should retain a paystub, a form W-2 statement or any other document given to you by your employer showing the total amount withheld for charity, along with a pledge card showing the name of the charity.
These requirements are in addition to the requirement of obtaining an acknowledgment from the charity for each donation (whether money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Remember to make sure the charity you’re donating to is an eligible charity, because only donations to eligible charities are tax deductible. If you are unsure, Select Check is a searchable online tool available on IRS.gov, and it lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they aren’t in the IRS database.
Another important thing to remember is that contributions are deductible in the year made. This includes any contributions made with your credit card, even if you don’t pay the credit card bill until 2015. All checks count for 2014, as long as they were mailed in 2014.
Also, there are special rules for cars, boats and airplanes. If you donate a car, boat or airplane to charity, the deduction is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. A form 1098-C or a similar statement, must be provided to you by the organization and attached to your tax return.
And lastly, you can only take advantage of these charitable contributions if you are itemizing your deductions. I.e. Your itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) don’t exceed the standard deduction. This means you don’t get any additional tax benefit from charitable contributions.
With all of this in mind, good luck with your donations, and Happy Holidays.
Davis and Hodgdon Associates CPAs has been assiting nonprofits, individuals and businesses with tax and accounting services in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].
William Cruse, Associate Accountant, Davis & Hodgdon Associates CPAs