Holiday generosity and your taxes

The holiday season is here, and many Americans are reminded of the tough times most people have experienced in 2012. Millions of people are still unable to find jobs, a large number face foreclosure and underwater mortgages and the wreckage from Hurricane Sandy has displaced many families. As the holidays tend to bring out the best in people, donations to charities and organizations often spike this time of year.

For the millions of people that donate their money and assets, it's important that they keep track of their contributions for tax filing purposes. The IRS allows individuals who make charitable contributions to qualified organizations to deduct these gifts on their federal income taxes. However, certain rules apply.

For example, individuals must ensure that the organization to which they donated qualifies under IRS rules. For example, donations made to specific individuals, political organizations or campaigns do not qualify. Instead, the government classifies qualified organizations as those that organize and operate for religious, charitable, educational, scientific or literary purposes. Those that function to prevent cruelty to children or animals also qualify. In order to claim the charitable contribution, individuals must file a Form 1040 and itemize their deductions on Schedule A.

In addition, stock donations or other types of non-cash property are typically valued at the fair market value of the assets. Clothing and household items that are donated must be a good condition in order for consumers to receive a tax break.

Documenting charitable contributions

In order to claim these deductions, individuals must keep records of their generosity. For all check, cash and monetary gifts, filers must maintain a bank record, payroll deduction records or a written communication from the organization that states the name of the organization, the date of the donation and amount of the contribution. Donations of $250 or more may also require a description of the property contributed and a written record of whether the organization provided any goods or services for the gift. For contributions over $500, individuals must also complete and attach IRS Form 8283, Noncash Charitable Contributions, to their returns. Individuals who make donations in excess of $5,000 must also complete Section B of Form 8283, and possibly have the item appraised by a qualified professional.

The holidays can be a great time of year for individuals to help out fellow Americans while lowering their tax liability at the same time. Taxpayers should ensure they understand the rules governing their donations to file correctly.

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