Charitable Contributions – Charitable Organizations
Charitable Contributions – Six Facts You Need To Be Aware Of
Remember the bygone days when you went to your tax preparer, or perhaps in doing your own return, and you pulled a number out of the air for charitable contributions? Your preparer would ask you how much you gave and you rolled your eyes and said, well, I usually give $10.00 in cash every week for 50 weeks, or perhaps some other embellished number. The preparer wrote it down and that was it. Folks, those days are over! The IRS has focused their attention to this area and has some rather strict guidelines that must be followed…or else.
- Most importantly, be aware that for charitable contributions to be deducted on your tax return, they must be made to a bona-fide charitable organization, and you need a receipt. This includes most churches, and other charitable organizations that have IRS approval as a 501(c) (3) charity. The IRS website has a listing of these organizations. Contributions to individuals and/or political organizations do not qualify.
- In order to deduct these charitable contributions on your personal tax return, you must have sufficient deductions in total to be able to itemize. These deductions would include, but are not limited to, medical expenses, state income taxes, real estate taxes, mortgage interest, investment interest, and various miscellaneous deductions. These charitable contributions are deducted on Schedule A of the Form 1040. In our firm, we have our clients give us a list by name and amount, and we list them on a sub-schedule, attached to the return.
- There are times when you aren’t able to deduct the total amount of your charitable contribution. This usually happens when you purchase a ticket to a charitable event and a dinner is served or perhaps you received some other tangible benefit. The cost of the ticket is reduced by the amount of benefit that you received, and that net amount is what you can deduct on your tax return.
- This area has been very severely abused by taxpayers for many years, and that is in-kind (non-cash) charitable contributions. Remember how you used to tell your tax preparer that you gave ten bags of used clothing to Goodwill and they were worth $150.00 a bag? This too is no more! The IRS requires that a listing of these types of donations showing the approximate cost and the current deduction value. There are several websites where you can prepare these lists to give to your tax preparer. The list is for their files and doesn’t get attached to the return. Donations in non-cash that exceed $5,000.00 in fair market value require an appraisal by a qualified appraiser. Donating vehicles has special rules and the amount of your deduction is generally the amount that the charity sold it for.
- There are various forms and records that you are required to maintain when donating non-cash type items. If the items exceed $500.00 in value, a Form 8283 must be completed and attached to your tax return. This form goes into some detail, so be aware of it. A separate sheet listing the items is required as well, but is not attached.
- If any of your cash contributions total $250.00 or more, you are required to have a written acknowledgement from the charity showing the amount of your donation, the date received, and description. The IRS also requires that a statement be on the acknowledgement saying that you didn’t receive any goods, services, or tangible benefit for your donation. There was a test case in Texas a few years ago where the IRS disavowed all contributions to a church because this wording wasn’t on their annual member giving statement. As a result, none of those members could deduct their contributions to that church on their tax return. Very bad news, and yet many churches today aren’t aware of this requirement or just refuse to do it.
These six items are by no means all inclusive, so if you have any questions regarding charitable contributions, contact a tax professional. Or, if you prefer, you can visit the IRS website, and they will have answers to the most common questions. In addition, if you receive a statement from a charity or a church, where your charitable contributions were $250.00 or more, and the required IRS language is not present, notify the proper individual and point it out. Lastly, be absolutely certain that your charitable organizations are IRS approved.