Did you feel good last year when you wrote out that check to your favorite charity? Many – but not all — taxpayers also will find a financial glow waiting for them when they fill out their income tax returns.
Federal law rewards donations to charitable organizations with deductions that reduce taxable income. But the Internal Revenue Service also requires proof for taxpayers to claim the write-offs, and the rules have been getting stricter in past years.
EricJohn Ltd. and other tax preparers can guide taxpayers through the tax codes about contributions. Here are a few principles about pleasing Uncle Sam when deducting charitable donations on 2011 income tax returns:
ELIGIBILITY
- You must file IRS Form 1040 (the long form) and complete Schedule A which lists itemized deductions.
TYPES OF DONATIONS
- Money in any form – cash, checks or credit card transactions — is eligible.
- Financial property, such as stocks or bonds, also can be gifted. Physical property, including real estate and personal goods ranging from clothing to autos (new or used) can be deducted.
- There even is a way to deduct costs incurred in volunteering (but not the value of time or skills spent in volunteer activities)
PROOF OF DONATIONS – This is where charitable deductions can get complicated.
- While cash donations are deductible, you or your tax preparer cannot merely declare the amount of contributions made over the year. The IRS now requires bank records, receipts or payroll stubs to back up the donations. Those proofs also must show at least the amount given, the organization and the date of the contribution. If an instance is $250 or more, a written acknowledgment from the charity is necessary. A bank record alone is not enough, the IRS says.
- “Non-cash” contributions — such as personal goods or autos – also require proof, and it increases with the size of the donation. In general, the IRS expects a written receipt from the charity along with a description of the property. The charity also must disclose if you received any benefit from the contribution, as well as the amount involved. Generally, the IRS accepts “fair market value” as the dollar value for non-cash donations. If the total value of non-cash donations reaches $500 or more, you must file Form 8283, which your tax advisor can help complete.
HINTS FROM ERIC ABOUT DEDUCTIONS FOR CONTRIBUTIONS
- Back up deductions for non-cash contributions easily with photos from a cell phone or point-and-shoot camera. Keep the photos and charity’s receipt slip in a tax return file.
- In most cases, the IRS allows at least a basic “thrift value” of 10 percent of original cost of a non cash item. But it also can be worth more, if a price is established either by an appraisal or perhaps in comparisons with prices on services such as eBay.com for very similar goods. Many eBay items sell for about 30 percent of original cost, Eric says.