Giving to charity can help a worthy organization and your income tax status, too. You can deduct contributions of either cash or goods to qualified organizations, reducing the amount of income on which you have to pay taxes. You'll have to keep records and get appraisals for large non-cash donations but you can basically contribute up to 20 percent of your income.
Gifts must be made to a qualified organization registered with the Internal Revenue Service. Qualified nonprofits include religious, charitable, educational and scientific organizations. Some fraternal and sports organizations also qualify. The Red Cross, United Way, Goodwill and similar organizations all qualify. Ask about the tax status if you don't know the organization.
Get a receipt for non-cash donations, such as clothing, furniture or other goods, which must be in usable condition. You'll have to have an appraisal for any single item for which you'll claim a deduction of more than $500, but you can deduct the fair market value, even if that's more than you paid for the item originally. If it's over $5,000, you also need to complete a Form 8283 and have it signed by both the appraiser and the charity.
It's a good idea to get receipts for cash contributions, too, but you must have them for any amount over $250. If your donation was a ticket to a dinner or other event, you can't include the cost of the meal or entertainment in your deduction. A qualified charity usually will give you a statement showing the deductible amount.
Alternative Minimum Tax
Really big givers may collide with the IRS Alternative Minimum Tax, a regulation to prevent the very rich from escaping taxes with high deductions. AMT taxpayers are denied some deductions, but charitable donations are allowed. A very high income taxpayer who lives in a state with a very low state income tax could lose some charitable, and other, deductions because of rules that phase out itemized deductions on top incomes.