With the holiday season upon us, charitable contributions play a significant role in making the holiday season a bit merrier. To many, charitable contributions also play an important part in their year-end tax planning strategy.
But don’t get too caught up in the holiday spirit – individuals and businesses must comply with the tax law provisions and general substantiation requirements for year-end charitable contributions.
Clothing and household items:
- To be deductible, clothing and household items donated to charity must be in good used condition or better.
- A clothing or household item (e.g., furniture, furnishings, electronics, appliances, and linens) for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
- Donors must get a written acknowledgment from the charity for all gifts worth $250 or more, that includes, among other things, a description of the items contributed.
- To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
- Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement, or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
- These requirements for monetary donations do not change or alter the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.
Other IRS charitable giving reminders:
- Only donations to qualified organizations are tax-deductible. The IRS maintains a searchable online database (Exempt Organization Select Check, available at gov by clicking “Tools”) listing 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 though they often are not listed in the database.
- Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2015 even if the credit card bill isn’t paid until next year, and checks count for 2015 as long as they are mailed before the end of the year.
- For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. Thus, individuals who choose the standard deduction, including anyone who files a short form (i.e., Form 1040A or 1040EZ), are ineligible to claim the deduction. 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. The 2015 Form 1040 Schedule A can be used to determine whether itemizing is better than claiming the standard deduction.
- For all donations of property, including clothing and household items, the taxpayer should get from the charity, if possible, 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, the taxpayer should 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 that value. Additional rules apply for a contribution of $250 or more.
- 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 noncash contributions is over $500, a properly completed Form 8283 must be submitted with the tax return.