Tax Tip: Charitable Contributions

Charitable Contributions

Did you make a cash contribution to your favorite charity? Have you recently spent a weekend cleaning stuff out of your garage or basement that you then donated to a local charity?

Charitable contributions can be tax deductible, but you must have the proper records to support your deduction. Due to the Pension Protection Act of 2006 the rules on recordkeeping for charitable contributions became a little more strict beginning in January 2007.

To deduct a charitable cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.

Under the previous rules, records such as personal bank registers, diaries or notes made around the time of the donation could often be used as evidence of cash donations. Personal records like this are no longer sufficient.

Here are some additional tips to help you deduct your charitable contributions on your 2008 federal tax return.

• Charitable contributions are deductible only if you itemize deductions using Form 1040.
• Contributions must be made to a qualified organization.
• Used clothing and household items such as furniture, linens and appliances must be in good used condition.
• Vehicle donations are subject to special rules.
• To deduct charitable contributions of items valued at $250 or more you must have a written acknowledgment from the qualified organization.
• To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.

More information is available on the IRS Web site at IRS.gov. A good resource is IRS Publication 526, Charitable Contributions, found on the web site or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

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Vehicle Donation Deductions

If you donated a car or other vehicle to a qualified charitable organization in 2007 and intend to claim a deduction you should review the special rules that apply to vehicle donations. You can deduct contributions to a charity only if you itemize deductions on Schedule A of Form 1040.

Generally, the amount you may deduct for a vehicle contribution depends upon what the charity does with the vehicle. Charities typically sell donated vehicles. If the vehicle is sold by the charitable organization, the deduction claimed by the donor usually may not exceed the gross proceeds from the sale.

If your deduction is $250 or more you must obtain written acknowledgement of the donation from the charity. If your deduction is more than $500, this written acknowledgment or Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, must be attached to your return. Among other things, the acknowledgment generally must include the gross proceeds of the sale, the vehicle identification number, and a statement certifying the vehicle was sold in an arm's length transaction between unrelated parties.

If the organization intends to make significant intervening use of the vehicle or material improvements to the vehicle, the acknowledgment must include certain certifications. If the organization intends to sell the vehicle to a needy individual at a price significantly below fair market value, or gratuitously transfers the vehicle to a needy individual, the acknowledgment must also include certain certifications.

In addition, for deductions greater than $500, Form 8283, Noncash Charitable Contributions, must be attached to the return.

You can generally deduct the vehicle’s fair market value instead of the amount of gross proceeds from the sale if any of the following situations apply:

• The organization makes significant intervening use of or materially improves the vehicle
• The organization gives or sells the vehicle to a needy individual at a price significantly below fair market value in direct furtherance of its charitable purpose of relieving the poor and distressed or underprivileged who are in need of a means of transportation
• The claimed deduction is $500 or less

The fair market value cannot exceed the private party sales price listed in a used vehicle pricing guide.

For more information see Publication 526, Charitable Contributions, Publication 561, Determining the Value of Donated Property, and Publication 4303, A Donor’s Guide to Car Donations, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Search for Exempt Organizations
• Publication 526, Charitable Contributions (PDF 177K)
• Publication 561, Determining The Value of Donated Property (PDF 101K)
• Publication 4303, A Donor’s Guide to Car Donations (PDF)
• Form 8283, Noncash Charitable Contributions (PDF)
• Instructions for Form 8283, Noncash Charitable Contributions (PDF)

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Charitable Contribution Tax Deduction

Keep in mind the IRS requires dated receipts for deducting charitable contributions on your tax return.

When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations could add up to a sizeable tax deduction if you itemize on IRS Form 1040, Schedule A.

Starting in 2007 to deduct any charitable donation of money, taxpayers must have a bank record or a written communication from the recipient showing the name of the organization and the date and amount of the contribution. Though taxpayers are already required to keep records to support their contribution deductions, this new provision is designed to provide greater certainty, both to taxpayers and the government, in determining what may be deducted as a charitable contribution.

Here are a few tips to ensure your contributions pay off on your tax return:

• You cannot deduct contributions made to specific individuals, political organizations and candidates. Nor can you deduct the value of your time or services and the cost of raffles, bingo or other games of chance.
• Contributions must be made to qualified organizations to be deductible.
• Only contributions actually made during the tax year are deductible.
• If your contributions entitle you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
• Donations of stock or other property are usually valued at the fair market value of the property.
• Clothing and household items donated must be in good used condition or better to be deductible.
• Special rules apply to donation of vehicles.
• You can claim a deduction for individual contributions of $250 or more only if you obtain a written acknowledgment from the qualified organization.
• If you claim a deduction of more than $500 for all contributed property, you must attach IRS Form 8283, Noncash Charitable Contributions, to your return.
• Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which requires an appraisal by a qualified appraiser.

For more information, check out Publication 526, Charitable Contributions, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Search for Charities or download Publication 78, Cumulative List of Organizations
• Publication 526, Charitable Contributions (PDF 178K)
• Publication 561, Determining the Value of Donated Property (PDF 101K)
• Form 1040, U.S. Individual Income Tax Return (PDF 176K)
• Schedule A, Itemized Deductions (PDF 116K)
• Form 8283, Noncash Charitable Contributions (PDF)
• Instructions for Form 8283, Noncash Charitable Contributions (PDF)

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