Print Posted by National Association of Tax Professionals on 09/24/2014

Contributions and Gifts – A guide to the different tax implications for the giving person

Contributions and Gifts – A guide to the different tax implications for the giving person

The IRS recognizes the importance of donating to charitable organizations and allows taxpayers to report certain charitable contributions as itemized deductions. Contributions made to qualified organizations that are religious, charitable, educational, scientific or literary in purpose are deductible. It is important to verify the organization’s charitable status. The easiest way to do this is to call or check the organization’s website. 

A receipt is needed for any donation claimed on Schedule A, even the dollar dropped into the red bucket or the text made to the Red Cross. If you do contribute via text, keep your cell phone bill in your tax records. 

Make note of nondeductible contributions: clothing or food given directly to those in need is not deductible; the items must be given through a charity. Political contributions are never deductible. The value of time is not deductible—even if the work accomplishes something a paid position would otherwise accomplish or if it time off of work was taken.

Noncash contributions require records describing any property donated and the method used to determine its value. The taxpayer is responsible for valuing the property either through appraisal or through comparison to other property. Generally, charitable organizations will only issue a receipt stating the donation was made and will not assign a value. Special rules apply for donated stock, real estate and other capital assets that would have resulted in capital gains. Please consult a tax professional for guidance.

Millions of people report noncash charitable contributions on their tax return each year. Giving your used items to charity instead of throwing them out makes you feel good about helping an organization.  If you plan on itemizing your deductions and including your contributions on Schedule A, make sure you have proper documentation.

Before you take your items to charity, document the items you plan to donate. The items you donate   must be in good condition for you to claim them as an itemized deduction. Take a picture or document a description of each item. Also, document the fair market value of the property at the time of the contribution and how you figured the fair market value. If it was determined by an appraisal, you should also keep a copy of the signed appraisal. For smaller items, local charities may be able to provide you with a guide. Be sure to also write down the cost or basis of the property.

When you donate the items to the charity, be sure to get a receipt. For deductions less than $250, the receipt should have the name of the organization, the date, the location and a reasonably detailed description of the property. These items are also needed for deductions of at least $250 but not more than $500. The receipt must be written, and include a statement on whether the organization gave you any goods or services as a result of your contribution. It must also include a description of the donated item and a good faith estimate of the value. If you plan on donating anything worth over $500, you   should consult with your tax professional.

When you give cash or property to an individual, the gift is not taxable to that individual. However, if you give away too much, you may have to report the gift and pay gift tax. The IRS allows you to give each individual up to $14,000 during the year, and the first $145,000 of gifts to a noncitizen spouse, without requiring you to report the gift or file a gift tax return. In addition, certain gifts do not count toward the $14,000 annual exclusion, such as amounts paid directly to qualifying educational institutions for tuition or medical expenses (including health insurance) paid directly to the person or the medical organization.

If you give more than $14,000 to one individual during the year, you must file a gift tax return to report the taxable gift. Your gift will be taxable to the extent the amount given exceeds $14,000. However, you can give up to $5,340,000 (indexed for inflation each year) in taxable gifts during your lifetime before you are required to pay any gift tax.

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