It’s the season for giving… and the IRS is doing their part to encourage your charitable contributions. If you itemize your deductions, your donations may be deductible when you get started on your 2012 tax return. Keep in mind that these deductions are only eligible in the year they are made so be sure to make your donations before the end of the year. To help plan your end-of-year giving, here are a few strategies to consider:
When making cash donations, all taxpayers must retain a bank record or receipt from the charity showing the amount and date of the contribution. As long as you have the appropriate records to support you deduction, you can include any contributions made by cash, check, credit card payment or payroll deduction.
When making non-cash donations of household goods or clothing, you’ll also want to be sure to secure a receipt from the charity detailing the items being donated, name of the charity and date of the donation. Additionally, be sure to estimate and document the fair market value of the property being donated. If the total value of your donations exceeds $500, you’ll need these details to complete Form 8283 which must be filed with your tax return.
In addition to clothing and household items, it is common for taxpayers to donate automobiles to charitable organizations. The rules for donating a vehicle are slightly different. The amount that can be claimed will be based on how the charity or nonprofit organization actually uses the vehicle. If the organization sells your donated vehicle without using it in any significant way, the charitable deduction cannot exceed the gross proceeds of the sale. If the organization uses the vehicle, rather than sell it, you must have documentation of the vehicle’s value, or fair market value. The receiving organization should issue form 1098-C. One copy of this form should be kept with your records and the other should be attached to the tax return.
Lastly, since donations made only to qualified organizations are eligible, be sure to do your homework before claiming any deductions on your return. You can refer to the IRS Exempt Organizations Checklist to search for qualified organizations.
As 2012 comes to an end, I hope you’ll consider how your charitable contributions might not only reduce your tax burden but also help someone in your community.
Happy Holidays from Liberty Tax Service®!