Charitable contributions made to qualified organizations may help to reduce your taxable income and lower your tax bill. The IRS has put together the following tips to help ensure your contributions pay off on your tax return.
A charitable deduction must be given to a qualified organization. This means the group meets the government's requirements to be classified as a tax-exempt organization. You can check the IRS's own online searchable database of exempt organizations. You cannot deduct contributions to specific individuals, political organizations and candidates.
To deduct a charitable contribution, you must file IRS Form 1040 and itemize deductions on Schedule A.
If you receive a benefit because of your contribution, such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair-market value of the benefit received. For example, a charity offers two concert tickets in exchange for a $1,000 donation to its annual fund drive. If the concert tickets are valued at $200, your deduction is limited to $800—the difference between what you gave and what you got.
Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll-deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and the amount of the contribution.
Donations of stock or other non-cash property are usually valued at fair-market value of the property. In many cases, donating a stock that has increased in value is a better tax move than contributing the same amount of cash. You'll avoid capital-gains tax and net a bigger deduction because you can write off the entire value of the stock, not just what you paid for it.
Clothing and household items must generally be in good used condition or better to be deductible. Specific rules apply to vehicle donations. If the vehicle is worth more than $500, you must receive a written acknowledgement from the non-profit before you can claim a tax deduction.
If your total deduction for all non-cash contributions for the year is over $500, you must complete and attach IRS Form 8283, Non-Cash Charitable Contributions, to your tax return.
Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of IRS Form 8283, which generally requires a written appraisal by a qualified appraiser.
Your charitable contributions may be limited. Generally, you can deduct cash contributions in full up to 60 percent of your adjusted gross income (AGI). You can deduct property contributions in full up to 30 percent of your AGI. Charitable contributions in excess of these amounts can be carried over to the following year. The excess contributions can be carried over for a maximum of five years. For tax year 2021, those who itemize can deduct up to 100% of their adjusted gross income. Separately, there is a new $600 (per married filing jointly) donation deduction provision for those who do not itemize their taxes for 2021.
If you did volunteer work for a charity and used a personal vehicle or took public transportation for volunteering, you can deduct mileage (14 cents per mile) or the cost of your public transportation as a donation to charity. However, the value of your personal time is not tax-deductible.
For more information on charitable contributions, refer to IRS Publication 526, Charitable Contributions. For more information on your non-cash contributions, refer to IRS Publication 561, Determining the Value of Donated Property.
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or firstname.lastname@example.org.
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