Since it is the time of year when people tend to make extra charitable contributions, we want to remind you of several important tax law provisions and general substantiation requirements that you should keep in mind.
Rules for clothing and household items:
To be deductible, clothing and household items must be in good condition or better. If you want to deduct over $500 of clothing or household items (e.g., furniture, furnishings, electronics, appliances, and linens) this does not have to meet this standard if you include a qualified appraisal of the item with the return. Donors must get a written acknowledgment from the charity for all gifts worth $250 or more, that includes, among other things, a description of the items contributed.
Guidelines for monetary donations:
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity, the date, and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash, check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement, or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for monetary donations do not change or alter the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.
Some additional reminders:
Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2014 even if the credit card bill isn't paid until next year, and checks count for 2014 as long as they are mailed before the end of the year.
Only donations to qualified organizations are tax-deductible. IRS maintains a searchable online database that you can search by clicking here, which lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in the database.
For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. Thus, individuals who choose the standard deduction are ineligible to claim the deduction.
For all donations of property, including clothing and household items, the taxpayer should get from the charity a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity's unattended drop site, the taxpayer should keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.
The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor's tax return.
If the amount of a taxpayer's deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein