Tax-Deductible Donations: What You Need to Know
Americans donated an estimated $295 billion to different charities in
2006–a new record, according to “Giving USA 2007,” a report from the Giving
USA Foundation. Our generosity allows us to make a difference to a wide
range of worthy causes. There’s a reward for this generosity, too, because
it also qualifies you to take tax deductions for your donations. Recent
changes in the tax law have made a difference on which deductions you are
allowed to claim, however, advises the Iowa Society of Certified Public
Accountants.
Get it in writing
First, you should be aware that you can only claim a charitable donation if
you itemize on your tax return. In general, you are allowed to deduct your
contributions of cash, checks, or other monetary gifts to a qualified
tax-exempt organization, such as a house of worship or a charity. In the
past, it might have been acceptable to keep personal notes showing that you
had dropped some cash in the collection plate. Under the new rules, when you
donate cash, you will need documentation.
If you give money, your documentation can be a cancelled check or a bank,
credit union, or credit card statement showing the donation. If you give
monetary gifts, you will need a written record of what you gave. No matter
what you give, a bank record or a receipt from the charity must include the
organization’s name, the amount of the contribution, and the date of the
donation. If you donate through a payroll deduction, you will need a pay
stub, Form W-2 wage statement, or some other documentation from your company
showing how much was withheld, along with a pledge card that gives the name
of the charity. Without these records, you won’t qualify for a deduction.
Take pictures
We all know that any non-monetary items donated to a charity should be in
good, useable condition, but the Internal Revenue Service now requires that
taxpayers prove that they are. This applies to all clothing and household
items, which the IRS defines as furniture, furnishings, electronics,
appliances, etc. If you donate something now and you are questioned about
its condition a year later, it will be difficult to establish that it was in
good condition. As a result, CPAs advise that you photograph your donated
items and make notes about their condition.
Confirm the value
In some cases, a receipt from a charity may not be sufficient to get your
deduction. If you claim more than a $5,000 income tax deduction for items
other than readily valued property, the property must be appraised.
Check the group’s qualifications
You can only deduct donations made to groups that the IRS considers to be
“qualified.” In general, that means that the group is a religious,
charitable, educational, or other philanthropic organization approved by the
IRS to receive deductible contributions. If you want advice on charitable
giving, your CPA can help you understand the guidelines.
Access “Find a CPA.”
