With the recent changes in tax law, many more taxpayers are taking the Standard Deduction, rather than itemizing deductions like taxes, mortgage interest and charitable contributions. Tax deduction or not, supporting the efforts of a nonprofit can be the right thing to do. But you want to make sure you preserve your deduction if you need it. Here are rules to remember if you make a gift to a charity to ensure your deduction.
Contributions, regardless of the amount, cannot be deducted unless you have a record of the contribution. If the contribution is cash or some other form of currency and it’s less than $250, you can use a cancelled check, electronic fund transfer receipt or some other form you create. For example, if you put cash in the offering plate at church, take a copy of the church bulletin and put a note on it with the amount given.
Contributions of $250 or more require a written receipt from the organization, which must include the date of the receipt, the amount paid, and a note indicating if any goods or services were received in exchange for the gift (such as a dinner). You must have this receipt when you file your return. If you don’t get it, and your return is audited, it’s too late to get the receipt. The contribution may not be allowed.
Noncash contributions, such as clothes and other items donated to Goodwill, or stock donations to your church, are handled a bit differently. If your noncash contributions are $500 or more, you must complete an additional form to list additional information about your contribution. Form 8283, Noncash Charitable Contributions, must be completed and you must list the donee organization, amount of the gift, and other information to substantiate your gift. The receipt requirement remains.
In many cases, the value of a noncash contribution is left up to the taxpayer. If you give clothing and household items to Goodwill, your receipt will list what you gave, but will not provide a value. General guidance for items like this is to use “Thrift Shop Value”, which in my mind is roughly what the items are worth at a yard sale. That shirt may have cost $50, but now it’s worth $5, or less.
Other items may be easier to value. For example, if you want to donate food items to a local charity kitchen, you may go to the grocery store and buy $100 worth of groceries. Keep your receipt, write a note on the receipt to describe your donation, and you have good documentation for a $100 contribution.
Many folks give marketable securities in lieu of cash. The best way to give stock is to transfer the shares from your account to the account of the charity. Be sure you get a receipt as described above, and your contribution is valued based on the market price on the date of the transfer.
To get a tax deduction, you must give to a qualified charity. Be especially careful following a disaster because a scammer posing as a relief organization could take your money. Also, there are often local tragedies where you want to help someone in need. Helping should not be about the tax deduction but if you want to help, and get a tax deduction, the gift must be to a qualified charity. For example, if a family loses everything in a fire, there are often calls to help the family. There are usually local agencies collecting on behalf of the family, and if you give to those qualified organizations, your contribution will be deductible. But giving money or clothing directly to the family is not deductible.
Just because they increased the Standard Deduction and you’re not getting a direct tax deduction for your charitable contribution, please support those organizations you believe in. And if you will benefit from the contribution with a tax deduction, be sure you follow the rules to substantiate your gift.
As with most items I write about, I have only covered the basics. If you have specific questions about substantiating a tax deduction, especially a large one, please contact our office so we can advise you on the rules in your specific situation.
At Faw & Associates, we are always available to answer any of your tax or financial planning questions. We are accepting new clients please contact us for an appointment.At Faw & Associates, we are always available to answer any of your tax or financial planning questions. We are accepting new clients please contact us for an appointment.