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Giving to a charitable organization has two benefits. First, it helps that group provide services to needy individuals. Second, it can provide a nice deduction from your taxable income. Like everything else associated with income taxes, the Internal Revenue Service has strict rules on charitable deductions. You have to itemize deductions on a Form 1040, Schedule A, contributions must be to a qualified nonprofit organization and you need proof.
You can deduct contributions of either money or property to religious or service organizations, like churches, United Ways, Goodwill Industries and the Red Cross. These generally need IRS 501(c)3 tax-exempt status. You also can deduct donations to governments to support things like parks and recreational facilities. In general, you are limited to 50 percent of your gross income.
Cash Gift Receipts
Contributions of money can be made in cash, by check or credit card or through some automatic deduction. For amounts up to $250, you can keep a receipt, cancelled check or statement. Donations of more than $250 require a written acknowledgement from the charity. In most cases, you should submit this acknowledgement with your tax return.
Gifts of property, merchandise or other non-cash contributions must be deducted at the fair market value or what the item would be worth if sold. For donations up to $500, you need a receipt listing the organization, date of the donation and a description of the property and its value. For donations over $500 but less than $5,000 you also need a written acknowledgement and an appraisal if the gift is clothing or furniture.
A non-cash donation worth more than $5,000 needs all the basic documentation plus an appraisal. An exception is publicly traded stock, which does not require appraisal. The $5,000 total applies if you donate a group of similar items whose total value exceeds that amount. If you donate a vehicle, the charity must send you a form showing its value, but there's an exception if the value is $500 or less.
Total Over $500
If your total of all non-cash charitable donations is over $500, you must file a Form 8283 signed by the charity and an appraiser. In all cases, any services or items provided for the gift have to be deducted from the total. A $100 ticket to a banquet, for instance, must have the cost of the meal taken off. Donations to some organizations, such as fraternal groups including Shriner's Hospitals, are limited to 30 percent of gross income.
You can only deduct contributions made during a tax year. If you pledge $1,000 but pay it in installments over five years, you can only deduct $200 in the year that payment was made. There's an exception for credit card charges or payments by check made toward the end of a year. You can deduct those when they're made, even if you don't pay the bill or get the check statement until after the first of the year.
- Internal Revenue Service: Charitable Contributions
- Internal Revenue Service: Eight Tips for Deducting Charitable Contributions
- H&R Block: Tax Tips & Calculators
- Money Crashers: Tax Deductions for Charitable Contributions and Donations
- Trader Status.com: Charitable Contributions
- SmartMoney: The Tax Perks of Charitable Giving
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