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KNOW THE RULES ON CHARITABLE DEDUCTIONS

 

     Knowing The Rules On Charitable
          Deductions         

What types of contributions qualify for a tax deduction?

Contributions made to qualified charitable organizations. Qualified organizations include nonprofit groups qualified by the IRS as religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. 

You cannot deduct contributions to political parties or political candidates. Charitable contributions are considered itemized deductions on your tax return, so you may be subject to limitations.

You cannot deduct contributions to political parties or political candidates.

What types of records and receipts should I maintain?

If you claim a deduction for a cash contribution, you are required to keep a record showing the date, amount, recipient and check number if applicable. A cancelled check is adequate for gifts less than $250. If your contribution is $250 or more, the law requires that you receive a written receipt from the charitable organization. 

The receipt, or acknowledgment, must include the amount you gave and whether or not you received anything of value as a result of your contribution. You are not required to combine separate contributions to the same organization during the year to obtain the $250 limit unless the checks are written on the same date.

Contributions made by payroll deduction are treated as separate contributions. You must have either a payroll record that proves your deduction or other documentation from the charitable organization that proves you didn't receive anything of value as a result of your contribution.

If you contribute property (property is anything other than cash) to a charitable organization, the kinds of records you must keep depend on the value of the property you contribute. 

If you claim a deduction of less than $250, you must obtain and keep a receipt from the charity showing the name of the charity, the date of the donation and location of the property and a reasonably detailed description of the property donated. A receipt for donated property is not required if you drop the property off at an unattended drop site, but you must keep reliable written records for each donated item.

If you deduct a property contribution of at least $250 but not more than $500, you must get and keep a written acknowledgment of your contribution from the charity which includes a statement of whether the organization gave you any goods or services as a result of your contribution and a description and good-faith estimate of the value of those goods and services. This is in addition to a receipt and your own written records.

If you claim a deduction for a property contribution of more than $500, you must keep your own written records, a receipt, an acknowledgment, and additional records. Your written records must include additional information, such as how you received the property, the approximate date you received the property, and the cost basis of the property. You must also file Form 8283, Noncash Charitable Contributions.

If you donate property with a value in excess of $5,000, you must keep all of the records listed above and you must take special measures, such as a written appraisal, to substantiate your charitable deduction.

What is the deduction for property contributions - cost or fair market value?

If you donate property, you can generally deduct either the fair market value of the property or its cost to you, whichever is less. For example, if you donate clothing or household items, your deduction will typically be an estimated fair market value which is less than the amount you paid for the items. 

If you donate property that has increased in value and you've held the property for a year or less, the amount of your contribution is generally your cost. This is an important item to remember if you plan to donate stocks or bonds that you have held for less than one year. If their value has increased since your purchase, you may want to wait until a year has passed or simply donate cash so that you do not lose a portion of your deduction.

If you donate property that you have held for more than a year, and the property has appreciated in value, you get the best tax break. Assuming you limit your current year contributions to 30% of your adjusted gross income (instead of the normal 50% limitation), you can deduct the higher fair market value as a charitable contribution. 

If you want to use the 50% limitation on your contributions, you'll have to use your cost, minus any depreciation you were able to take on the property, as your contribution amount.

If you are donating property that has been depreciated, such as rental property or assets used in your business, you will have to follow special rules to figure the amount you can deduct.

What if I receive goods or services from my donation?

If you make a contribution to a charity that is more than $75 and you receive some goods or services, the charity must give you a written statement which states that you can deduct only the amount of your contribution that is more than the value of the goods or services you received. 

The charitable organization must also include in the statement a good-faith estimate of the value of the goods or services that you received (or were entitled to receive).

Certain membership benefits provided in return for a payment of $75 or less can be disregarded. These benefits include free or discounted admission to facilities or events (except athletic events), free or discounted parking, preferred access to goods or services, and discounts on the purchase of goods and services. You can deduct the entire charitable contribution.

The cost of raffle tickets, bingo, or contributions to a charitable lottery are considered as gambling costs and fall under the gambling rules. You can deduct gambling losses only up to the amount of gambling winnings that you have. Gambling winnings are reported as other income on your tax return and losses are deducted on Schedule A.

What about expenses I incur performing charitable work?

You can deduct certain out-of-pocket expenses that are related to your charity work such as gas and oil for your car (or a standard mileage rate - 14 cents per mile in 2014). You should keep a log of the miles you drive for charity and keep in mind that you cannot include depreciation or repairs and maintenance deductions for charitable purposes. 

You can deduct parking fees and tolls, whether you use your actual expenses or the standard rate. You must keep records of your car expenses which include the name of the organization you used your car for, miles driven, and actual costs if deducting actual expenses.

Other expenses, such as travel costs or items purchased solely for the purpose of assisting the charity are deductible. If you travel on behalf of the charity, you can take the deduction only if there is no significant element of personal pleasure, recreation, or vacation included in such travel.

 

 
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