www.taxprofessionals.com - TaxProfessionals.com

How to Deduct Those Donations

How to Deduct Those Donations

Contributions and donations given to a charity are tax deductible expenses. One of the perks to donate to a qualified charitable organization is that you not only get to help your favorite charity but also keep your tax bills low and reduce your taxable income.

Not everyone is able to deduct their charitable contributions; instead, they need to itemize their tax deductions in order to claim any charitable organization. As per IRS Publication 526, tax payers should itemize their tax deductions on Form 1040, Schedule A to deduct their charitable contributions of property or money given to a qualified organization.

There are certain deduction ceilings and records you must keep when giving donations to charities in order to claim for a tax benefit. Let’s have a look at the ins and outs of the charitable donation tax deductions.

Important Rules to Claim for the Charitable Contribution Deduction

There are some important rules that you should keep in mind when you donate cash or a property to a charitable organization in order to meet the criteria of a tax deductible. Also, we highly recommend you to ask about the rules from your local tax preparer firm, like EB Tax Consultants located in Brooklyn, New York.

1. You must make sure to contribute to a qualified tax exempt organization

According to IRS Publication 526, there are some organizations that are considered qualified and permissible for tax deductions such as religious churches and synagogues, Red Cross, YMCA, Salvation Army, non-profit veteran organizations, and U.S. State or City governments. Such organizations receive a 501 (c) (3) status from the IRS which makes them eligible and fit for the qualified organizations.

2. You must donate in the form of cash or a property

Your charitable contribution must be in the form of money or a property instead of a pledge or a promise. Your local professional tax preparer, from EB Tax Consultants in Brooklyn, New York for instance, can guide you through these complex tax issues.  

3. You must keep excellent records for your charity

You will only be able to get a tax benefit if you maintain proper records such as acknowledgement letters from the charity, checks, or appraisals for the property.

4. You must be able to itemize

Donating to a charity is one of the best tax planning strategies but it will only be beneficial to you if you are eligible to itemize the deductions. You can consult this matter with us, a professional tax preparer to know if you are eligible to do so.

Here are Some Policies You Must Remember for Record Keeping

All the tax payers are required to maintain excellent and organized records of their charitable donations or contributions. You must maintain written records of all cash donations indicating the name of the charitable organization, the date of your contribution, and the amount you contributed. In addition, canceled checks, bank or credit union statements or a credit card statement also work when claiming for tax deductions. You need to remember certain rules for record keeping for the cash or a property contribution as per the IRS Publication 78.

1. Contributions under $250

When you make contribution under $250, a dated receipt with the name, date, location of the charitable organization, and some details of the property will be sufficient to claim for the tax deduction.

2. Contributions for $250 or more

The IRS permits you to claim for tax benefit when you contribute $250 or more in a charitable organization. You will be required to submit a written acknowledgment, determining your list and total contribution given to the charity.

3. Contribution for $500 or more

Those who have made non-cash gifts summing up to more than $500 for the year, they are will required to attach and complete the IRS Form 8283 to claim for their tax deduction. In addition, if you donated a car, plane, boat, or any motor vehicle, you must fill and attach the IRS Form 1098-C when you file for your tax return.

4. Contribution exceeding $5000

If you have made huge contributions including a single item or a group of similar items, exceeding $5000 during the last year, you must get a written acknowledgement or appraisal from the desired qualified charitable organization to claim the tax deductions.

The IRS accepts selected written acknowledgements and appraisals to provide tax benefit to the tax payers. You should take advice from a tax preparer to have a better understanding about eligible written acknowledgements such as postcards, official e-mails, printed forms, and letters.

Limitations on Charitable Donation Tax Deductions

In order to claim for your tax deductions, you need to know about certain limitations. Your donations are directly related to your adjusted gross income (AGI).

1. 50% Limit Organizations

The consultants of the tax preparer firm you have hired can help you in identifying whether a charitable organization comes under 50% limit organization or not. These firms usually have a ceiling of 50% of your AGI. They include the following:

  • Churches
  • Educational organizations
  • Hospitals and medical research organizations
  • Publicly supported charities
  • Private opening foundations

2. 30% Limit Organizations

Some charitable organizations generally limit 30% of your AGI for capital gain property donations unlike other organizations that limit 50% of it.

  • Veteran organizations
  • Fraternal societies
  • Non-profit cemeteries
  • Private non-operating foundations

3. 20% Limit Organizations

Deductions for charitable contributions of appreciated capital gains cannot be more than 20% of your AGI during the year in such organizations.

Tips for Deducting Charitable Contributions

Here are some tips that can keep your tax bills on the lower end.

    • Give your donations to a qualified organization.
    • Do not forget to file Form 1040.
    • Make sure that you itemize on Schedule A.
    • Maintain a proper and organized record.
    • Make sure that you donate in the form of cash or a property.
    • Keep your acknowledgements and appraisals from the charitable organizations safe.

We highly recommend you to take guidance from a local tax preparer firm, like EB Tax Consultants in Brooklyn, New York for a seamless donation tax deduction process.  Just click the link below and we can help you right away!

Contact Member