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Getting the Most Out of Your Charitable Contributions
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Making contributions to charitable organizations is something most Americans take pride in doing, but did you know that in addition to helping a great cause the funds you donate may also be tax deductible?


Source: GreenStone Farm Credit Services

Getting the Most Out of Your Charitable Contributions


Making contributions to charitable organizations is something most Americans take pride in doing, but did you know that in addition to helping a great cause the funds you donate may also be tax deductible?

Charitable contributions may be deducted only if they are made to a qualified organization. Qualified organizations include religious organizations, government bodies, nonprofit schools and hospitals, public parks, public charities and war veterans’ groups. If in doubt, ask the organization if it is a qualified charitable organization, or go to www.irs.gov/charities.

Contributions  to civic leagues, social and sports clubs, labor unions and chambers of commerce, lobbying organizations, homeowners associations, foreign organizations (with some exceptions), political groups or candidates, individuals, cost of raffle, bingo or lottery tickets, value of time or services or rental value of vacation property are not deductible.

Generally, the deduction for charitable contributions is limited to 50 percent of the taxpayer’s adjusted gross income (AGI). A reduced limit of 30 percent or 20 percent applies to contributions of certain property. Contributions that exceed the limits may be carried forward five years. There is a special law for farmers making qualified conservation contributions of real estate before Jan. 1, 2014, which allows a deduction of up to 100 percent of AGI and any excess can be carried forward for 15 years. However, starting in 2014 qualified conservation contributions of real estate will be subject to a 30 percent AGI limit.

In order to deduct a cash contribution less than $250, you must keep one of the following: a canceled check; a legible bank or credit card statement detailing the date, the amount paid, and the name of the organization; a receipt or letter from the qualified organization showing the same information; or payroll deduction records. Undocumented contributions of cash are not allowed.

For cash contributions of $250 or more, you must obtain an acknowledgement from the organization. The acknowledgment must be written and include: the date and amount of cash contributed,  whether the organization gave you anything in return, and if so, a good faith estimate of the value of the items received. The acknowledgement must be received prior to the filing date of the tax return (including extensions). There are several recent court cases which have disallowed large charitable contributions simply because the acknowledgement was not received on a timely basis. Internal Revenue Service (IRS) auditors are challenging all charitable contributions and will disallow the contribution if you do not meet the documentation requirements.

Documenting non-cash charitable contributions can be more challenging than documenting cash contributions. If the non-cash contribution is less than $250, you must get a receipt from the organization showing the following:  the name of the charitable organization, the date and location of the charitable contribution and a reasonably detailed description of the property donated. A receipt is not required where it is impractical (such as an unattended drop site); however, a written record should be maintained with the above information. Although not required, it is advisable to keep pictures of the property donated.

For non-cash contributions of more than $250, all of the above, plus, you must obtain a written acknowledgement from the qualified organization showing a description of the property donated, whether the organization gave you anything in return, and if so, a good faith estimate of the value of items received. The acknowledgement must be received before the tax filing deadline, including extensions.

Taxpayers making non-cash contributions exceeding $500 must attach Form 8283 to their income tax return. Form 8283 requires:  a description of how the property was acquired (purchased or received by gift or inheritance), the date the property was acquired, the cost basis of the property and how the value of the donated property is determined (thrift shop value, appraisal, purchase, etc.).

Non-cash contributions exceeding $5,000 require an appraisal. Appraisal fees are deductible as a miscellaneous itemized deduction on Schedule A, which are subject to a 2 percent floor.

You may deduct out-of-pocket expenses incurred for volunteer work provided to qualified organizations. The expenses must be directly related to the activity sponsored by the organization, unreimbursed, and not personal living or family expenses. No deductions are allowed for the value of your time. Vehicle mileage is allowed at 14 cents per mile. There are special documentation rules for donated vehicles. Generally, the deduction for donated vehicles is limited to the amount the charitable organization received from selling the vehicle.

Congress has made contribution documentation requirements very stringent and the IRS is aggressively enforcing these requirements in audits. Make sure to dot your “i’s” and cross your “t’s” when documenting charitable contributions. If you have any questions or would like additional information, contact your local GreenStone tax specialist.

This notice is required by IRS Circular 230, which regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding information and or any attachment is a written tax advice communication, it is not a full "covered opinion." Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. Such assurances can be granted only by securing a covered opinion letter. Should you wish to explore the option of receiving a covered opinion letter relating to a tax advice matter, please contact us.