Gifts and Uncle Sam
The 411 on tax-deductible donations.
Americans pitched in $295 billion to charities in 2006, a new record, according to a report from the Giving USA Foundation. Our generosity allows us to make a difference to a wide range of worthy causes.
Besides, the gifts often qualify for tax deductions. Recent changes in the tax law have made a difference in which deductions you’re allowed to claim, however, according to the North Carolina Association of Certified Public Accountants.
GET IT IN WRITING
First, you should be aware that you can claim a charitable deduction only if you itemize on your tax return. In general, you’re allowed to deduct your contributions of cash, checks or other money to a qualified tax-exempt organization, such as a house of worship or charity.
In the past, it might have been acceptable to keep personal notes showing that you had dropped some cash in the collection plate. Under the new rules, when you donate cash, you’ll need documentation. That can be a cancelled check or a bank, credit-union or credit-card statement.
No matter what you give, a bank record or a receipt from the charity must include the organization’s name plus the amount and date of the contribution. If you donate through a payroll deduction, you’ll need a pay stub, Form W-2 wage statement or some other documentation from your company showing how much was withheld, along with a pledge card that gives the name of the charity. Without these records, you won’t qualify for a deduction.
We all know that any non-monetary articles donated to a charity should be in good, useable condition, but the Internal Revenue Service now requires that taxpayers prove that they are. This applies to all clothing and household items, which the IRS defines as furniture, furnishings, electronics and appliances.
If you donate something now and you are questioned about its condition a year later, it will be difficult to establish that it was in good condition. As a result, CPAs advise that you photograph your donated items and make notes about their condition.
CONFIRM THE VALUE
In some cases, a receipt from a charity may not be sufficient to get your deduction. If you claim more than a $5,000 income-tax deduction for items other than readily valued property, the property must be appraised.
CHECK THE GROUP’S QUALIFICATIONS
You can deduct donations made only to groups that the IRS considers to be “qualified.” In general, that means that the group is a religious, charitable, educational or other philanthropic organization approved by the IRS to receive deductible contributions.