The following is a guest post by Kim, otherwise known as Mrs. Luke1428. She is a CPA at Loggins, Kern & McCombs in Jonesboro, Georgia. The following is intended to be a general tax discussion and not tax advice. If you have questions about your specific situation, please consult a professional.
Do Not Give Simply For The Tax Benefit
I am making this the #1 tip because that is how strongly I feel about it. Giving should come from my heart and not because of any perceived benefit come tax time. It’s a spiritual issue for me based on teachings like this one from the Bible:
“So let each one give as he purposes in his heart, not grudgingly or of necessity; for God loves a cheerful giver” – II Corinthians 9:7
Knowing how to deduct the charitable gift on your taxes is important to make sure it is done right, but the tax benefit should not be the motivation for the gift. Suppose you can’t decide whether to give to a charity or to a person in need, and maybe you feel led to give to the individual person. Even though you can’t deduct gifts to individuals, the right thing to do is to give how your heart is leading you despite losing the deduction.
Keep Good Records For Cash Gifts
You should be able to back up all cash deductions with records, whether it is a bank statement, payroll deduction record, or a written communication from the charity. If you gave via text message, keep the phone bill that shows the amount, the receiving organization, and the date. If you gave over $250, you need to have a contemporaneous statement from the organization that acknowledges the gift. These statements include very specific wording regarding the gift and how you did not receive anything in return.
In fact, in a recent court case, a couple was denied a $25,000 charitable deduction because of this very issue. When the couple did their taxes that year, they received and kept a statement from the church. However, it lacked the proper wording.
When the couple was audited, the IRS denied the deduction because the statement didn’t have the correct wording. So, they went back to the church to get another properly worded letter. The IRS denied the deduction again (and the tax court ruled with the IRS) because the second letter wasn’t contemporaneous! The amount of the donation, and the eligibility of the charity wasn’t in question — the only reason the deduction was denied was because they didn’t have sufficient records.
Keep Even Better Records for Non-Cash Gifts
So, what should you do if you donate a bag of clothes to Goodwill or the Salvation Army?
First, you should have a receipt of the date and place of the donation. Next, click here to download my firm’s Salvation Army/Donation Valuation List. It’s an Excel spreadsheet where you can list what you’ve donated. It will automatically calculate what is referred to as the “thrift store value” of the items. This is the amount that you can deduct on your tax return.
Keep in mind, the more non-cash items you donate, the more record keeping needed. If you donate more than $500 in non-cash items, you need to fill out Form 8283 with your tax return. If you donate something other than stock worth over $5,000, then you generally need to have an independent appraisal done.
Thinking about donating a vehicle like on all the commercials you hear on the radio? Make sure you are up to date on all the special rules for vehicles. It may make that donation seem less appealing.
The same can be said for donating a boat, as you should make sure that you know how the entire boat donation process works before getting started. You will quickly find that going with a charity like Boat Angel South Carolina is a great choice to make, as they take care of the entire process from start to finish. Once you inform them of your intentions, they will let you know how to complete the donation and will let you know how your tax deduction will work. It’s a pretty good deal, if you ask me.
Finally — don’t forget that you can deduct charitable miles driven.
For more information, take a look at IRS Publication 526 (pdf). It details everything possible about the charitable donation — including the fact that, if you happen to be a whaling captain, you can claim as a charitable deduction any reasonable and necessary whaling expense. (I am not making that up — look at page 6 of the pdf).
Have you ever found yourself giving just for the tax benefit? What’s your favorite charity to give towards? Would you become a whaling captain if you knew you could claim a charitable deduction for the cost of your weapons and boat?
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