The IRS is reminding individuals and businesses making year-end gifts to charity that important tax law provisions have taken effect in recent years. Following are some of the changes to keep in mind.
Contributions of Clothing and Household Items
Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax deductible. A clothing or household item for which for which a taxpayer claims a deduction of over $500 does not have to meet this standard if including a qualified appraisal of the item with the return. Donors must have a written acknowledgement from the charity for all gifts valued at $250 or more. This must include a description of the items contributed.
Taxpayers must have a bank record or written statement from the charity in order to deduct any amount of money, regardless of the amount. Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction.
The record must show the name of the charity, date and amount of the contribution. Bank records include cancelled checks, or bank, credit union or credit card statements. Statements should show the name of the charity, date and amount paid. For payroll deductions, the taxpayer should retain a pay stub, Form W-2, or other document provided by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
The IRS offers the following additional reminders to help taxpayers plan their holiday and year-end gifts to charity:
- Qualified charities. Only donations to eligible organizations are tax-deductible. IRS.gov has a searchable online tool available, Select Check, 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 if they are not listed in the tool’s database.
- Year-end gifts. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, which includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2014 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
- Record donations. For all donations of property, including clothing and household items, if possible get 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, 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 the value. Additional rules apply for a contribution of $250 or more.
- Special rules. 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 non-cash contributions is over $500, a properly completed Form 8283 must be submitted with the tax return.
Additional information on charitable giving can be found at IRS.gov, including charities and non-profits, Publication 526, as well as an on-line mini course titled “Can I Deduct my Charitable Contributions”.