Do you want to lower your taxes? Making charitable contributions is an easy and
effective method to achieve this goal. You are eligible to take a deduction for
contributions or gifts made to certain qualified organizations. The contributions
can either be in the form of money or property. You must file Form 1040, U.S.
Individual Income Tax Return, and itemize deductions on Schedule A, Itemized
Deductions, to take advantage of this deduction.
More information on charitable deductions, is provided below
Qualified Organizations:
You can deduct contributions only if you make them to a qualified organization.
To be considered qualified, most organizations other than churches must apply
to the IRS. Local fundraisers for community members in need of assistance
will not be considered qualified organizations unless they have been accepted
as such by the IRS.
Some examples of qualified charitable organizations:
Churches
Most nonprofit organizations (such as Salvation Army, Red Cross, Goodwill Industries,
United Way)
Nonprofit hospitals and medical research
Most nonprofit educational organizations (such as Junior Achievement)
Nonprofit volunteer fire departments
Public parks and recreation facilities
War veterans' groups (such as Disabled American Veterans and Purple Heart)
Contributions that do not qualify:
Cost of raffle tickets, bingo, and lottery tickets
Contributions to political groups
Gifts to individuals
Organizations run for profit
Donations to civic leagues and social clubs
Date of Contribution
You may usually deduct charitable contributions only in the year that you actually
make them. A check that you mail is considered delivered on the date you
mail it. A contribution charged on a credit card is deductible in the year
you make the charge. The amount of your deduction may be limited depending
on the type of property given and the type of organization to which it is
given. Some contributions that you are not able to deduct in the current
year because of adjusted gross income limits may be carried over to future
years.
Contributions of Property
Extra tax deductions may be as close as your closet. The fair market value
(FMV) of clothes, furniture, and other items you donate to qualified organizations
can be claimed as charitable contributions. You can determine the FMV of
the property by checking the classified section of a newspaper for similar
used items or by looking at the prices charged for similar items at a thrift
or consignment store. IRS Publication 561, Determining the Value of Donated
Property, is also a helpful source of information.
Generally, the deduction for property contributed is equal to the FMV of the
property at the time of the contribution. If the value of the property has
increased, different rules may apply.
Exchange Students
If you have an American or foreign exchange student living in your home, you
may be able to deduct up to $50 per month as a charitable deduction on Schedule
A. You must have a written agreement from a qualified organization that provides
the student program. The student must not be your dependent or a relative
and must be a full-time student at the high school level or below.
Volunteer Activities
You can also deduct the out-of-pocket expenses incurred while serving as a
volunteer for a qualified organization. This includes uniforms not suitable
for everyday use, travel expenses where no significant element of personal
pleasure is involved, and 14 cents per mile for vehicle expenses. The value
of your time or services cannot be deducted.
Partially Deductible Contributions
Have you attended a charity benefit or event lately? You may be able to deduct
the dollar amount that is more than the FMV of the event. For example, you
attend a dinner fundraiser for a qualified non-profit organization and your
ticket price is $65. If the regular price of the restaurant meal would have
been $10, your contribution amount would be $55.
If you receive goods or services in exchange for your contribution, you can
deduct only the amount of the payment that is more than the value of the goods
or services received. For example, if you spent $20 on Girl Scout cookies and
it would have cost $15 to purchase the cookies from the store, then you would
be able to deduct only $5.
If the payment is more than $75, the qualified organization must give you
a written statement that indicates the value of the goods or services received.
Records to Keep
The IRS requires you to keep a written acknowledgement from the church or organization
for any single contribution of $250 or more. You should keep records and
receipts for all other contributions as well.
For the contributions of less than $250, you should have a canceled check,
receipt from the organization, or other reliable written documentation of the
contribution. For contributions of $250 or more, written acknowledgement of
the contribution from the qualified organization is required to claim the deduction.
For contributions of property, you should have a receipt indicating the name
of the charitable organization, date of the contribution and description of
the property. If you have total property contributions of more than $500, you
will need to complete Form 8283, Noncash Charitable Contributions, and attach
it to your return. If you have donated property with a FMV exceeding $5,000,
you may be required to obtain a written appraisal by a qualified appraiser.
