MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
TAX-DEDUCTIBLE DONATIONS: WHAT YOU NEED TO KNOW
(January 2008) -- 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, advises the Virginia Society of CPAs.
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 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.
We all know that any non-monetary items donated to a charity should be in good, useable condition, but the Internal Revenue Service (IRS) 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.
Research the charitable organization
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.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
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