As you are cleaning house before the relatives come to visit, you may come across a number of items that you no longer need or want but could brighten someone else’s holiday season.
Many charities are looking for toys your children have outgrown or usable clothing that has gone out of style. Here are some tips for making someone else’s holidays a little brighter, while saving some tax dollars for you at the same time:
1. Only donations to qualified charitable organizations are tax deductible. Providing help directly to a family in need may fill you with the holiday spirit, but it will not secure a tax deduction for you. Maybe you can find a local church, temple, synagogue or mosque to act as a go-between.
➤ You must itemize your deductions to claim charitable contributions on your return.
2. If you receive a benefit because of your contribution, such as event tickets or a discount at a local restaurant, then you can deduct only the value of your contribution that exceeds the value of the benefit received.
3. Cash contributions, regardless of amount, must be substantiated by a bank record, like a canceled check or credit card receipt, showing the name of the charity and the amount of the gift. A written acknowledgment from the charity showing the date and amount of the gift will also suffice. Dropping a check in the kettle or asking the bell-ringer for a receipt takes some of the luster off the gift, but it’s a requirement if you want the tax deduction.
➤ The rules for a deduction of monetary donations do not change the requirement that you obtain an acknowledgment from a charity for each deductible donation – either money or property – of $250 or more. However, one statement containing all of the required information may meet both requirements.
4. If you have money taken out of your paycheck for charity, keep a pay stub, a Form W-2 or other document furnished by your employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
5. For 2013 only (unless Congress extends it again), an IRA owner who has reached the age of 70½ or older can make a direct transfer of up to $100,000 per year to an eligible charity, tax free. This means that amounts directly transferred to the charity from your IRA are counted in determining whether you have met the IRA’s required minimum distribution, but they will not be considered a taxable withdrawal. Some restrictions apply: Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
6. If you donate a noncash item, you can generally deduct the item’s fair market value – what the item would sell for in its current condition. Keep notes on how you determined the value. A picture of the item may also help if your tax return is audited.
➤ If the items you donate include used clothing and household items, there is an additional requirement that the deduction be allowed only if the item is in good used condition or better.
➤ On the other hand, if the item is worth more than $500, even if it is in less than “good” condition, you may still be able to claim the deduction if you go through the effort of obtaining an appraisal.
7. The rules for the donation of a car, truck, other motor vehicle, boat or airplane are a little different. Rather than using the fair market value of the donation, you generally are limited to deducting the gross proceeds the charity receives from its sale if the value of the item is more than $500. You must obtain a Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes, or a similar statement, from the charity and attach it to your tax return. Other rules apply if the charity doesn’t sell your donation within a specified time period.
8. If the total of all your noncash contributions is over $500, your tax return must also include a Form 8283, Noncash Charitable Contributions.
9. Special rules apply to donations of appreciated goods, like stock or jewelry, or difficult-to-value items, such as artwork. If you plan to make these kinds of donations, check with your tax adviser.
Contributions are deductible in the year made, so be sure to get those gifts in by Dec. 31. Credit card charges made before the end of the year are deductible even if you pay the credit card bill next year. Similarly, checks written and mailed by the end of the year are deductible this year even if they are cashed in 2014.
You can also take some time out of your busy schedule to volunteer at a shelter, deliver a meal to a shut-in or shovel snow for an elderly neighbor. You won’t get a tax deduction for the value of your time, but you will brighten someone’s day – maybe even your own. ■
©2013 CPAmerica International