Though Christmas has past, it’s still not too late to donate to a charity for the 2012 year! You can save on your tax bill by deducting these charitable donations. Taxpayers are encouraged to contribute money or non-cash items to charities, but for the donation to be deductible, it must meet the set IRS requirements.
Organization’s Tax Status: Only contributions made to eligible charitable organizations are deductible. The IRS is constantly revising its list of qualified organizations, revoking some that fail to comply with its set regulations, and you have to check its website to find the compliant institutions to channel your donations to. If unsure, simply ask the organization you intend to donate to whether it is tax-exempt or not.
Itemized Deduction: To deduct charitable contributions, you must itemize them on Schedule A of Form 1040.
The Fair Market Value: Donors are free to contribute either cash or non-cash items. For all non-cash goods, their fair market value must be established. There are some special rules that apply to property donations like cars, clothing as well as household goods. In case the charitable organization gives something in return like merchandise, any goods or services, free admission to a charity banquet or even a sports fun day, then only the value that exceeds the fair market value of the of received benefits are deductible.
Record Keeping: Keeping of tax records is significant but many taxpayers find it hectic. Any cash contribution, irrespective of the value, has to be documented for it to be deductible. Any cancelled check, bank or credit card statement or payroll deduction records or even a written and signed statement from the organization may be required.
Large Donations: Any contribution exceeding $250 must be supported by more documents for it to be deductible. The charity organization must acknowledge receipt of the donation in writing, with the cash amount donated or the fair market value of the donated items clearly specified for property donations. It must also be stated whether the charity provided any goods or services in return. Form 8283-Noncash Charitable Contributions must be completed for donations exceeding $500 while claims for non cash property contributions exceeding $5,000 must be appraised by a qualified appraiser and attached to Form 8283.
Timing: Donations made to charity are only deductible within the tax year they are made. Please note that pledges don’t apply, if you pledge to donate $1,000 but by the end of the year you only manage to contribute $500, it is the $500 that you can claim and not $1,000 pledged. However, end-of-year donations via credit card or checks can still be deducted for the very tax year even if the credit card bill is paid or bank account debited after December 31st.