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Congress recently approved a bill which allows donations to the Haiti Earthquake Relief Effort to be claimed as a tax deduction on 2009 tax returns. The donations must be made between January 12th and February 28th, 2010. For those that have already filed their 2009 returns, rest assured, you can still amend your return to include this tax deduction. Just a little more paper work.
Charitable Donation Rules Still Apply
There are a lot of charitable donation rules so be sure to review them all.
1) Maintain Supporting Documentation
Please remember to safely store all of the documentation related to your contribution as supporting evidence. This includes a receipt from the charitable organization detailing the name of the organization, the date, the amount of the contribution and description, if it is property. In addition, keep all bank or credit card statements that validate the contribution (refer to IRS Publication 526).
2) You Still Must Itemize to Claim the Deduction
To claim the donation as a tax deduction, you must itemize. You cannot take the standard deduction.
3) Donations Must be Made to a Qualified Organization to be Deductible
Even if you have a friend in Haiti, you cannot claim a tax deduction for donating directly to him or her. In most cases, you need to make the donation directly to a qualified organization for tax deductions which include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals (refer to IRS Publication 78).
4) Maximum Tax Deduction for Contribution equals 50% of AGI
Generally speaking, you cannot claim this tax deduction if your total tax deductions for charitable contributions for the year is over 50% of your adjusted gross income (AGI). If you are over the limit, kudos to you for being so generous!
5) Contributing Property Can Get Confusing
If there is a capital gain associated with the Fair Market Value of the contributed property, you could only contribute up to 30% of your AGI unless you choose to reduce the gain associated with the FMV of the property. In some instances, you may not be able to contribute more than 20% of AGI. These types of scenarios can get complicated so be sure to consult with a tax specialist if you are in this situation. Below are two special rules for contributing property in the form of clothing and motor vehicles.
Giving Away Your Clothes or a Couch?
Any clothing or household items that you donate must be in good used condition or better. If the items are greater than $500, you don't need to meet this standard as long as there is a qualified appraisal with the item.
Donating a Car, Boat or Plane?
Firstly, congrats on being lucky enough to have one of these items. Please note that if the claimed value is greater than $500, you can only deduct the lesser of the gross proceeds from the sale by the organization or the FMV of the property on the date of the contribution. You also would need to attach Copy B of Form 1098-C to your return to claim this deduction. If the claimed value is less than $500 it is the lesser of $500 or the FMV at the date of contribution.
As you can see claiming these contributions can get complicated so please review the IRS Publication 526.
Ryan S. Himmel is the founder of the website BIDaWIZ - the online marketplace for trusted answers from licensed business professionals (i.e. CPAs, CFAs, CFPs & More).
Visit us at BIDaWIZ to get answers to all of your tax questions or any accounting or finance concern.
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