The year-end brings the holidays and a barrage of charitable solicitations. It is also your last chance to make a charitable contribution and obtain a deduction for 2010.
Over the past few years, the IRS has tightened the recordkeeping rules for charitable contributions. Therefore, it might be appropriate to review the recordkeeping requirements before making your year-end donations to your favorite charities.
Rules for Clothing and Household Items – To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item 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. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations – 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.
Reminders – Here are some additional reminders to help taxpayers plan their holiday-season and year-end giving:
- Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2010 count for 2010. This is true even if the credit card bill isn’t paid until 2011. Also, checks count for 2010 as long as they are mailed in 2010 and clear the bank shortly thereafter.
- Verify that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
- For individuals, only taxpayers who itemize their deductions can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard 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. If you only marginally itemize your deductions, it may be appropriate for you to “bunch” your deductions in alternating years to maximize your itemized deductions in one year and then take the standard deduction in the other.
- For all donations of property, including clothing and household items, you must have written confirmation from the charity 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, a written confirmation from the charity is not required, provided that all such undocumented contributions for the year are less than $250 and a written record of the donations is kept that includes the information listed above, 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 motor vehicle, 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.
If you have questions, please give this office a call.