Did you know that donations to charity can help lower your tax liability? Now that 2016 is drawing to a close, many people are beginning to think about their year-end tax stuff. There is still enough time to make charitable contributions and have it count toward lowering this year’s tax bill. Only certain contributions are eligible. Be sure to check before donating to see if it is eligible.
Donations to eligible organizations are tax deductible. In order to count towards 2016’s tax bill, they must be made by December 31. To find out if your favorite charity is on the list of eligible organizations, check out the IRS select check tool. Churches, synagogues, temples, mosques, and government agencies are able to get deductible donations even if they are not listed in the database.
How to Claim Your Donation
Only taxpayers who itemize using 1040 Schedule A can claim deductions for donations. They are not available to people who use the standard deduction. They are also not available to people who file Form 1040A or 1040EZ UNLESS you only claim it on your state tax return. In Colorado, anything over $500 is deductible on the state tax return if it is not used for the federal tax return. In order to be able to use donations as a tax deduction, you must provide a bank record or a written statement from the charity. This can include canceled checks, bank statements, or credit card statements. For payroll deductions that automatically go to a designated charity, a pay stub will be sufficient evidence of donations. You may also use a Form W-2 wage statement showing the total amount given to charity along with the pledge card showing the charity’s name.
Donating Clothing or Property
A lot of people will head to Goodwill or other places where clothing or household items are accepted as donations. Keep in mind that for donations of clothing or other household items the deduction amount is limited to the item’s fair market value. In other words, you can’t give a ratty old t-shirt to Goodwill and claim a $100 deduction. All donated property must be in good or better condition to qualify for a tax deduction. The exception is if the deduction is over $500 as long as there is a qualified appraisal included with the return. Last, if you give $250 or more worth of property you should provide documentation from the charity. It should include a description of what you gave. Special rules apply to cars, boats, and other larger types of gifts.
Benefits in Return
No, I’m not talking about the warm, fuzzy glow you get from giving something for a good cause. Although that alone is a good reason to give to your favorite charity. If you get something in return for your donation, you may have to reduce how much you deduct from your tax return. Examples of benefits include merchandise, meals, tickets to events, or other goods or services.
Older IRA Owners
I don’t mean that your IRA is old. Instead I am actually referring to the age of the owner of the IRA. Perhaps it should be rephrased as “more mature IRA owners”. But I guess I digress. Back to what I was saying here–IRA owners who are 70 1/2 or older can transfer up to 100K per year to an eligible charity tax-free. Money must be transferred directly by the IRA trustee. Check out Publication 590-B for more information.
As always, keep good records when you give to charity. The type of records you need will depend on the gift you give. Sometimes you will be required to provide an extra reporting form for donations of “stuff” as opposed to money. Depending on the amount, an appraisal may also be required. Remember, you have until December 31 to give a gift to your favorite charitable organization for it to count towards this year’s tax bill. Gifts to the Human Fund do not count. So go ahead–give that gift to your favorite charity. ‘Tis the Season.