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3 Tips for Taking a Charitable Deduction on Your Taxes

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.

ID-10096025Feeling a little charity-minded? Here are some tips that may help you come tax time.

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?

Image courtesy of FreeDigitalPhotos.net

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Comments

  1. I always love to hear from accountants! I have never given for tax purposes and sometime feel guilty getting a deduction. It seems like it kind of takes away from the spirit of giving, although I know that’s silly to think that way. I’m trying to pick a different cause each month of this year to support. Some are 501 (c) (3)’s and some are not.

    • I like the idea of supporting a different cause each month. I bet that the search for the cause will help deepen your own desire to give. I’d love to know how it goes! Keep us updated!

  2. I’m not excited about filling out my taxes because this is just ANOTHER piece that is going to take some time. Thankfully I’ve kept good records so it shouldn’t be too difficult. I appreciate the tax advice, though! Ours will be pretty complicated this year.

  3. Awesome tips (Great post as usual)! It was like you knew we were getting ready to file our taxes this weekend or something 🙂

    Charitable giving has certainly been something we’ve been more cognizant of in the past several years and we agree that it should be more about giving than getting the deduction. Thank you for the excel sheets for the non-cash gifting! One of the tips that we got from our accountant friend has been to take pictures of the clothing that we donate, just in case. We firmly believe in “paying it forward” and our charitable giving fits in with our values. It’s also great that it fits in with our value of getting our financial house in order.

  4. Great tips, Kim! And I wholeheartedly agree with tip #1. Yes, charitable giving can have some nice tax advantages, which I certainly enjoy, but it needs to come from the heart, first and foremost. We would still give, even if there was no tax benefit because the benefit to our spirits is so rewarding. And – at the same time – ouch! That would be a bit of a shock to find out your $25k donation isn’t deductible.

  5. John S @ Frugal Rules says:

    I could not agree more with your first point Kim. While the side benefit can be nice, the drive should be to give and helping the charity out that you’re seeking to help. We give to our church the most and give a good bit to the Goodwill and a local food shelter.

  6. A strategy that we’ve taken advantage of is to donate appreciated
    stock from our portfolio to our church. The church gets the full value of the
    stock, we don’t have to realize any gain, we don’t pay any tax, and we get a
    deduction for the full fair market value of the stock. It’s a true win-win!

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