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 2011 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 in that your deduction is limited to the amount for which the charity ultimately sells the vehicle. In this case, the charity will issue written acknowledgment of the sales price which must be attached to your tax return.
Lastly, for 2011 only, an IRA owner who has reached the age of 70½ or older can make a tax free direct transfer of up to $100,000 per year to an eligible charity. This means that amounts directly transferred to the charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution (RMD) but will not be considered a taxable withdrawal. Some restrictions apply including the fact that distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
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 IRS Publication 78 to search for qualified organizations.
As 2011 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®!
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.