With flowers soon to bloom and springtime around the corner, next comes tax time. If you donated money or other items during the previous year, there are some important changes that you need to be aware of in preparation for this year's donations. For taxpayers filing returns on a calendar-year basis, which includes most individuals, the new provision applies to contributions beginning in a tax year.
During the year, you may choose to donate cash, checks or miscellaneous items to qualifying charities, and plan on marking such deduction on your taxes, using various forms of proof for the donation. Prior to August 17, 2006, tax law allowed taxpayers to back up these types donations of money with personal bank registers, diaries or notes made around the time of the donation. Going forward, it is important to note that these types of records will no longer be sufficient.
For example, in order for clothing and household items to be deductible, after August 17, 2006, theses items must be in good used condition or better. However, taxpayers may claim a deduction of more than $500 for any single item, regardless of its condition, if taxpayers include a qualified appraisal of the item with their tax return. Household items may include furniture, furnishings, electronics, appliances, and linens.
To deduct any charitable donation of money (cash, checks or other forms of currency), 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. Such bank record includes canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date.
While the new law makes some changes to the way that taxpayers report donations, it does not change the prior-law requirement that a taxpayer get an acknowledgement from a charity for each deductible donation (either money or property) of $250 or more. A statement from the charity containing all of the required information may meet the requirements of both provisions.
To assist taxpayers in understanding the new provision of the law, the IRS offers the following information:
Contributions are only deductible in the year made. Therefore, donations made via credit card before the end of the year may be included in the prior years taxes. This is true even if the credit-card bill isn't paid until the following year.
Check that the organization is qualified. Only donations to qualified organizations are tax-deductible.
For individuals, only taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (1040A or 1040EZ). 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
Personal property donations, including clothing, household and miscellaneous items, should have documentation that you receive from the qualified charity, which details a description of the property. If one is not available, keep accurate records of the donation including a description and condition of the property.
The deduction for a motor vehicle, boat or airplane donated to charity typically is limited to the gross proceeds from its sale, if the claimed value of the vehicle is more than $500.
This article is intended for informational purposes. Nothing in this article should be construed as legal advice or legal opinions regarding specific circumstances.
Every year I hope and expect to get a large tax refund when March comes around. We usually use our refund for a much-needed home improvement or a fun, family vacation. I do my best all year to keep track of paperwork, receipts, medical premiums and bills, and of course, my charitable donations.
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