With tax time looming, you may be wondering about how best to get a break here and there. Your yearly charitable contributions can be a great way to get a little break from the government; here’s how to get the best bang for your buck, whether you’re still donating to Sandy victims or figuring out how to document your donations.
Donating: Money vs. Goods?
While donating goods is more sentimental than giving cash in many cases, it can be harder to get as much credit for donating goods; you will be given credit for the “fair market value” of the item donated, and items or a group of similar items totaling $5,000 or more ($500 or more for clothing) may require an appraisal by a qualified appraiser before reporting, and items donated must be in good or new condition. Keep detailed records and even pictures of everything you donate, in case you are asked to prove their condition. Special rules apply to vehicle donations; the receiving organization must provide you with written acknowledgement of the donation on a Form 1098-C that includes the value of the item.
Which Organizations Should I Donate To?
The IRS only recognizes “qualified” organizations when it comes to your donations, such as churches, the Red Cross, or Boy Scouts or Girl Scouts. Donations to specific individuals or political organizations and candidates won’t count, and neither will donations to country clubs, lobbyists trying to change laws, or foreign organizations (except certain Mexican, Canadian, and Israeli charities). The IRS’s website specifies rules on what constitutes a qualified organization; they also provide a tool for checking if a specific organization qualifies. The IRS also accepts donations specified for education, such as expenses for having a student live in your home; however, paying someone’s tuition is not considered a charitable donation. Generally, national organizations are your safest bet for qualifying, although your local government is definitely a safe bet when donating for public purposes, such as lowering government debt.
Charging vs. Checks
Keep in mind that when you use your credit card, the charity you are donating to is losing about 3 percent to credit card companies. According to the Huffington Post, banks and card networks make around $250 million a year off of charitable donations. Using cash or check will ensure that your charity receives 100 percent of your donation, although many banks waive fees for specific charities.
Reporting to the IRS
If your total deduction for all non-cash contributions for the year is more than $500, you must complete and attach IRS Form 8283 (which should have been filled out by the organization you donated to) along with your normal tax forms. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records, or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. Keep copious records in case you are asked to show proof of your donations.
You deserve a bit of a break for your charity, so don’t miss what the government is willing to let you have. Make sure you keep careful records and be aware of rules for charitable contributions to avoid surprises at tax time.
