CHARITABLE CONTRIBUTIONS
It is the time of the year for giving. With holidays upon us it is not just a time to give to family and friends but also a great time to give to our favorite charity. When you give to family and friends there are usually no tax consequences. However, when you give to a charitable organization there can be significant tax consequences in the form of tax deductions. The following will outline the requirements of making a charitable contribution and the types of charitable contributions.
Requirements
There is more to donating to a charity than you think. In order to deduct a charitable contribution the following is required:
- The contribution must be to a valid charitable organization. The organization must be a corporation defined of being within one of the following categories: religious, educational, scientific, social welfare, and lodge system. In addition, the corporation must usually be reported as a 501(c)(3) corporation.
- You must itemize your deductions in order to take a charitable contribution deduction. If you report the standard deduction you cannot take a charitable contribution deduction.
- Cash contribution deductions cannot exceed 50% of your adjusted gross income.
- Non cash contribution deductions cannot exceed 30% of your adjusted gross income.
- You can only take the deduction in the year paid or donated.
- You may charge a contribution to a credit card and report the deduction in the year charged even though the charge is not paid until the following year.
- You must have the proper substantiation requirements.
Substantiation Rules
In order to take a valid charitable contribution deduction you must be able to substantiate the deduction. Please note the following substantiation rules:
- Cash contributions: When paying by check you must have at a minimum a canceled check. If a contribution exceeds $250 then you are required to obtain a written receipt that must state that “no goods or services were provided in exchange for the donation”. When paying by cash you must obtain a written receipt from the charity.
- Receipt requirements: The receipt must contain the name of the charity, the date, the amount, and if the amount is over $250 you must include the clause mentioned above.
- Non cash contributions: All noncash contributions must be evidenced by a receipt. The receipt must include the name of the charity, the date, a description of what was donated, and the fair market value of what was donated. It is the taxpayer’s responsibility to determine the FMV of the donation. This can be accomplished by the following methods: thrift store, catalog sales, and appraisal.
- Large noncash contributions: Noncash contributions in excess of $5,000 are considered a large contribution and must be substantiated by a qualified appraisal.