Making deductible donations to charity is an effective way of lowering your income tax bill each year, and if you forgot to include a donation on last year's tax return, you can certainly amend it to take a charitable contribution deduction. The tax rules, however, prohibit you from amending last year's return to deduct a donation made this tax year.
Year to Deduct
As a general rule, you can't deduct donations to charity until you file the tax return that covers the year the donation is made. In other words, donations made in 2013 are deducted on the 2013 tax return you file – you can't amend your 2012 return to include the donation deduction. For cash donations made by check, you can treat the date it's mailed or dropped off at the charity as the time of making the donation. Suppose, for example, you drop a check in the mail on Dec. 30, but it isn't cashed until Jan. 8 of the next year. In this case, you can deduct the donation in the earlier tax year – the date the check is cashed is irrelevant. When donating used clothing or household goods, deduct the donation in the year you drop the items off or have them picked up.
Fair Market Value
Figuring out how much to deduct is fairly straightforward for cash donations because the sum of all amounts donated during the year is your deduction. For donations of property, such as clothing, appliances, electronics and other household items, use the fair market value of each piece of property. When you donate these types of items, the Internal Revenue Service does require that everything be in at least good condition, or else it's treated as having zero value. Generally, fair market value represents the price for which all donated items can be sold. The Salvation Army publishes a handy valuation guide for items commonly donated. Because the values aren't specific to the Salvation Army, it may be helpful for calculating your deduction for donations to other charities.
The IRS limits the amount you can deduct for donations to charities to 50 percent of your adjusted gross income. If your donations ever exceed this limitation, the excess can be deducted over the next five years. However, you'll need to deduct the donations you make in each of those five years before you can start deducting the excess from a previous year. You also need to apply the 50 percent limit each year to the sum of current and prior-year donations.
Tax Return Reporting
One thing to keep in mind is that you can't deduct donations if you take the standard deduction because all charitable donations are reported as an itemized expense on the “Gifts to Charity” line of Schedule Also remember that you'll need to file Form 8283 with your return for years in which the value of all donations is more than $500.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.