You
can give merchandise, appreciated assets, count the miles you drive for
a worthy cause, even deduct part of the price of a ticket you purchased
to attend a charity event.
from
Bankrate.com
Good
deeds can also mean good tax breaks
Donations of goods and cash continue to pour into charitable organizations in the wake of the Asian tsunami disaster. For American contributors, one of the side benefits of all this goodwill is that Uncle Sam will reward you at tax-filing time -- if you follow donation tax rules.
First, you have to keep an eye on the calendar.
If you donated to a tsunami relief fund as soon as you heard the news of the December tidal waves, you can claim your contribution on your 2004 return that's due April 15. Under Internal Revenue Service rules, as long as any donation is in a charity's hands by Dec. 31, it can be claimed on that year's taxes.
But anything you contributed on Jan. 1 or later won't do you any tax good this filing season. You must wait another year to get the tax deduction since the timing of your gift means it will be taken into account on your 2005 taxes, not this year's return.
And just how much of a break your donations will produce also depends on how you file your taxes. Charitable contributions only help you at tax-filing time if you itemize deductions. That means you keep track of what you give and file the long Form 1040 and Schedule A.
If you opt instead to take the standard deduction when you file your return, the choice made by most taxpayers, your donations will still help the organizations you give to, but they won't help cut your tax bill. You can't add your donation totals to your standard deduction to increase that amount.
So how do you know whether you should itemize or claim the standard deduction? Start by finding out which standard deduction amount applies to you. It depends on your filing status:
- $4,850 for single or married filing separately taxpayers;
- $7,150 for heads of households; and
- $9,700 for married couples who file joint returns.
If you have enough deductions -- for example, your donations plus mortgage interest plus real estate taxes -- to exceed the standard amount, it generally makes good tax sense to itemize.
The rules regarding
charity tax claims
OK, you've determined that itemizing is the way to go. Now it's time to
tally your big-heartedness.
A nice thing about charitable contributions is that, unlike medical or miscellaneous deductions, there is no threshold amount to meet. You can give as little as $5 and still add it to the rest of your itemized deductions.
And you're not limited to monetary donations. You can give merchandise, appreciated assets, count the miles you drive for a worthy cause, even deduct part of the price of a ticket you purchased to attend a charity event.
But there still are a few IRS rules you must follow to make sure your contributions pay off at filing time.
To be deductible, contributions must be made to qualified organizations. This is especially important when disasters prompt giving; too often, con artists use such tragedies to take your money and give nothing to those suffering. Organizations can tell you if they are qualified and if donations to them are deductible. You also can read the charity's literature to ensure that it is fully recognized by the IRS. For complete peace of mind, check out the agency's online list (Publication 78) of exempt organizations or call the IRS at 1-800-829-1040 and ask about the group's tax status.
If you get anything in return for your donation -- merchandise, goods, services, admission to a charity ball, banquet, theatrical performance or sporting event -- you can deduct only the amount that exceeds the fair market value of the charity's thank-you token or benefit. For example, if you give your local PBS station $100 and get a $25 videotape of a Masterpiece Theater performance in return, you can only deduct $75.
When you give goods instead of cash, it's up to you -- not the IRS, not the charity -- to assign a value to your donation. Of course, the IRS has rules on how you decide what a donated item is worth: Claim its fair-market value, or what a willing buyer would pay for that item in its current shape, not what it was worth when it was new.
Even though you generally don't have to include substantiation of your gift-giving with your return, it's a good idea to keep a record of your donated goods as well as cash gifts. So when Goodwill asks, "Do you want a receipt?" say "Yes." If they don't offer, ask for one.
Extravagant giving
Acknowledgment of your largesse is necessary when your gifts are large.
For a contribution of $250 or more, you must get a written receipt of your
donation from the qualified organization before you can claim the
deduction.
When you donate more than $500 worth of goods to charity, you must include with your tax return Form 8283, Noncash Charitable Contributions, detailing your generosity. Take this deduction amount and forget the form, and the IRS could disallow your claim.
In an even bigger giving mood? If you claim a deduction of more than $5,000 for an item, the IRS wants more than just your word. You must have a qualified appraiser provide the value and then attach an appraisal summary (Section B of Form 8283) to your tax return.
And while Uncle Sam basically views charitable gifts as a good thing, he has his limits.
In some cases, the IRS won't let you claim all your contributions in one tax year. Generally, your donations cannot be more than 50 percent of your adjusted gross income, although in some instances the limit is 20 percent or 30 percent depending on the type of property you donate and the type of organization to which you give it.
You can carry over your excess contributions for up to five more tax years, but your carryover amounts will still be subject to the original adjusted gross income limitation rules. For most donors, these limits don't pose a problem. However, the total of all your Schedule A itemized deductions could be reduced if you make a lot of money ($142,700 for 2004 returns).
More details on
charitable contribution tax deductions and possible limitations are found
in IRS Publication
526, Charitable Contributions, and Publication
561, Determining the Value of Donated Property.
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Good deeds can also mean good tax breaks
