Giving to charity may make you feel good and help you lower your tax bill. The IRS offers these tips to help ensure your contributions pay off on your tax return.
1. If you want to deduct the gift, you must donate to a qualified charity. Use the IRS Select Check tool (www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check) to see if the group you give to is qualified. You can also deduct donations you give to churches, synagogues, temples, mosques and government agencies, even if Select Check does not list them in its database. You cannot, however, deduct gifts to individuals, political organizations or candidates.
2. In order to deduct your contributions, you must file Form 1040 and itemize your deductions. To do so, file Schedule A, Itemized Deductions, with your federal tax return.
3. If you get a benefit in return for your contribution, your deduction is limited to the amount of your gift that’s more than the value of what you got in return. Examples of such benefits include merchandise, meals, tickets to an event, or other goods and services.
4. If you give property instead of cash, the deduction is usually that item’s fair market value, or what you would receive if you sold the property on the open market.
5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations. To learn more about these specific rules, see this related article: Donating a vehicle might not provide the tax deduction you might expect.
6. If you make a gift at year-end, you can deduct the contribution in the year you make it. If you charge your gift to a credit card before the end of the year, it will count for 2017 even if you don’t pay the credit card bill until 2018. Also, a check will count for 2017 as long as you mail it in 2017.
7. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount and type of your donation.
For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. It can be a cancelled check, a letter from the organization, or a bank or credit card statement. The statement must show the name of the charity and the date and amount of the contribution.
If you give through payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
8. To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.
For taxpayers subject to the itemized deduction limitation, charitable donations will be reduced by 3 percent of the excess adjusted gross income (AGI). For 2017, the thresholds are $261,500 (singles), $287,650 (heads of households) and $313,800 (married filing jointly). The reduction will never exceed more than 80 percent of your charitable donation.
If you have any questions on how to deduct charitable contributions, please contact your KraftCPAs tax advisor. For strategies on generating tax deductions through charitable giving, see the following article: Charitable giving strategies can give you tax savings.