If you are like most Americans, you make donations throughout the year. Your schools, religious groups, museums, Salvation Army, Cancer Fund and many more non-profit organizations benefit from your giving.
The U.S. Congress recognizes the benefits of your generosity and has steadfastly maintained deductions on your federal income tax for charitable giving. But this doesn"t mean that there aren"t regulations to be followed. And the rules have gotten stricter for reporting charitable gifts on your next tax return.
In disposing of property, an estate owner's first area of concern is usually the welfare of family members. Through the estate planning process, an estate owner can assure that property will be distributed to family members in a way that is consistent with the estate owner's tax and non-tax objectives. Once the needs of family members have been met, many estate owners are then interested in making gifts to charities, for both philanthropic and tax reasons.
For those clients who are interested in making charitable gifts to qualified charitable organizations, several advantages are available to both the charity and the donor: The charitable gift benefits the organization receiving it. This fact is significant, because a charitable organization is not required to pay any gift or income tax on property owned or received as a gift. A lifetime charitable gift can result in a current income tax deduction for the donor. In addition, if the gift is income-producing property, the fact that the donor no longer owns the property means that it will not be part of taxable income in the future. Further, any appreciation in the property is gifted without adverse tax consequences. Lifetime charitable gifts can be made gift tax free. Unlike gifts to individuals, there is no limit on the amount of the charitable gift tax exclusion.
Charitable gifts can reduce estate taxes. The property gifted is removed from the donor's gross estate, for purposes of calculating the estate tax due. This is true whether the gift is made during lifetime, or at death under the terms of a will, trust, or life insurance policy. Unless limited by state statute, an individual's entire estate can be gifted to a charity estate tax free, using the estate's unlimited charitable deduction.
The good news: You are still permitted to take substantial tax write-offs for charitable contributions " as high as 50 percent of your adjusted gross income. The old news: Charitable contributions of $250 or more require a specific written acknowledgment from the charity. The new (stricter) news: Any out-of-pocket cash donations you make without documentation cannot be deducted. No longer can you deduct cash dropped in the collection plate at church or synagogue.
The solution: Get a receipt for all donations.
All donations must be documented by a bank record (cancelled check or bank statement) or a written communication from the charity. The documentation must include the name of the charity, the date of the contribution, and the amount of the contribution. For contributions of $250 or more, you can deduct the contribution only if you have an acknowledgment of your contribution from the charity. A bank record is not sufficient documentation for a donation of $250 or more.
For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution. In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations.
For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. One document from the qualified organization may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.
Donations of Clothing, Household Goods and Other Items
The good news: These donations are still deductible. The hard to understand rules: Experts are still working on how to interpret the language which reads, "to be deductible, clothing and household items donated to charity after August 17, 2006, must be in good, used condition or better." How does a taxpayer document the condition of used items? One option: Consider taking photos.
The documentation required for deduction of a non-cash donation varies with the amount of the deduction. If the deduction is less than $250, only a receipt from the charitable organization is required. For a deduction of $250 or more, a written acknowledgment from the charity is needed. If the deduction exceeds $500, detailed information on the items donated must be reported on your tax return. For donations exceeding $5,000 in value, a qualified appraisal is required to support the valuation. Recommendation: For all non-cash contributions, keep an itemized detailed inventory of what you donate including cost, date bought, condition and current value. Consider an appraisal or other means of documenting the value of expensive items that you plan to donate to charity.
We must fill out Form 8283, and attach it to your return, if your total deduction for all noncash contributions is more than $500 but less than $5,000, we will complete Section A of that form. If you claim a deduction for a contribution of noncash property worth more than $5,000, you will need a qualified appraisal of the noncash property and must fill out Form 8283, Section B. If you claim a deduction for a contribution of noncash property worth more than $500,000, you also will need to attach the qualified appraisal to your return.