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With year end rapidly approaching, many of you might be considering charitable contributions as a way of reducing your income tax. Even if you've already made such gifts, you should know about these rules:
1. You must make a charitable contribution to a qualified organization for it to be deductible. To find out if an organization is "qualified", you can either ask the charity or you can check in IRS Publication 78. This publication, titled Cumulative List of Organizations, includes most qualified charities. You can download Pub 78 at IRS.gov.
2. You can only deduct charitable contributions if you itemize using IRS Schedule A. Do remember, however, that some states, like Oregon, permit itemizing when it's more advantageous for you, even if it's not to your tax benefit on the federal tax return.
3. Typically, you can write off cash contributions and the fair market value of property, like used furniture or clothes, you donate to a qualified charity. You should familiarize yourself with special rules that apply to some types of donated property, like cars.
4. If you receive merchandise or services in return for your donation, you can only deduct the amount that exceeds the value of the benefit you receive. Examples include the cost of admission to a charity banquet or a ticket for a sporting event.
5. You must document any contribution you make. You should have proof that you actually made the contribution, like a cancelled check or a credit card receipt.
6. To be deductible, the contribution must actually be made in the tax year. A good example: if you pledged $500 in August but only paid $300 by year end, your deduction is $300, not $500.
7. You may deduct a contribution you made this year using a credit card, even though you pay the balance on the credit card next year. Likewise, you may deduct a contribution you make by a check written this year, even if the check does not clear the bank until next year.
8. For a contribution of $250 or greater, you must have written proof from the organization to prove your deduction. This letter should include the specific amount you gave or a good faith estimate of the market value of property you donated plus the date of the donation. The letter should also indicate if you were given goods or services in exchange for the donation and its value, if any.
9. If the value of your property donation is $500 or more, you need to include IRS Form 8283, Noncash Charitable Contributions, with your tax filing.
10. If you give property to a qualified charity that has a value of more than $5,000, you generally must have it appraised. If this happens, you must complete Section B of IRS Form 8283 and send it to IRS with your tax return.
You can get more information by obtaining IRS Publication 526, Charitable Contributions, and IRS Publication 561, Determining the Value of Donated Property. They are available at IRS.gov or by calling 800--829-3676.
As always, consult with your tax adviser to make sure that you are keeping the records you need to prove the charitable contributions you've made.
Charlie Seitz has prepared over 10,000 tax returns at latest count. His ezine, Terrific Tax Tips, gives taxpayers tools they need to intelligently reduce the taxes they pay.
He also provides online tax preparation software for people who do their own taxes. All profit Online is donated to organizations that feed children. Find out more at: -> http://www.taxpertonline.com
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