Tax Tips and Rules Around Charitable Donations and Contributions

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IRS tax rules around charitable donationsGiving is good. It’s even better if it doesn’t cost you in terms of taxes. So make sure you can maximize your giving and minimize your taxes by following the following IRS rules and guidelines when it comes to giving to charity:

1. Contributions are only deductible in the year they are made. Thus, donations charged to a credit card before the end of the year count for that year only. This is true even if the credit card bill isn’t paid until the subsequent year. Also, checks count for the year they are written as long as they are mailed and clear in the same year

2. Clothing and household items (non-monetary) donated to charity generally must be in good used condition or better (i.e. not torn or extremely faded) to qualify as a charitable donation.A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a – qualified appraisal of the item with the return. One thing most tax payer’s forget is that qualified charitable household items include furniture, furnishings, electronics, appliances and linens. So rather than throwing away your tube TV or old couch, consider donating it. Take a picture, document it’s condition and keep the receipt (if you still have it). Also you can search for companies in your local area that pick up these items and can provide you with the relevant tax receipts or forms

3. To deduct any charitable donation of money (cash, check, credit or payroll deduction), regardless of amount, a taxpayer must have a bank record or a written communication from the charity (normally a receipt or tax invoice) showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity

4. Check that the organization you are donating to is qualified as a charitable organization under IRS guidelines. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value

5.The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the you by the organization and attached to the donor’s tax return.

6. Claiming charitable donations: For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction. If the amount of a taxpayer’s deduction for all non-cash contributions is over $500, form 8283 must be submitted with the tax return.

7. IRA contributions. Under a special provision, currently scheduled to expire at the end of 2009, older owners of individual retirement accounts (IRAs) have a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible. To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer. See IRS publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Keep giving, because the more you give the more you get!

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8 Comments on "Tax Tips and Rules Around Charitable Donations and Contributions"


[…] giving each year. You must however maintain adequate records for all cash contributions if claiming the deduction. This means retaining receipts from the charity, a canceled check or an official bank statement […]

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[…] From that study, the IRS determines what is an average and valid range for, say, the amount of charitable-contribution deductions claimed by a person earning $100,000 a year. Then, a taxpayer with that income who […]

[…] taxpayers take the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local […]

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