In the tradition of tax years past, it’s the season to talk about charitable contributions!
Charitable donations are an excellent way to reduce your tax burden for the year, all while doing something for the greater good. But as with everything in tax law, there are rules that need to be followed.
For one, you can only take advantage of charitable contributions if you itemize. You report itemized deductions on a schedule A on your federal form 1040 on lines 16-19 (see below):
Next, cash deductions, regardless of the amount, must be substantiated by a bank record (such as a canceled check or credit card receipt) or in writing from the organization. The writing must include the date, the amount and the organization that received the donation.
For donations of non-cash items, the rule is that you can generally take a deduction for the fair market value of the items – what the item would sell for in its current condition. Non-cash items must be in “good” condition or better, or the contribution is disallowed. There is an exception to the rule: if the item is valued over $500 but not in “good” condition, you may still take the deduction if you have an appraisal for the item.
Additionally, special rules apply to appreciated goods like stock or jewelry, or hard to value items such as artwork.
To substantiate your donation, you need to obtain a receipt from the charitable organization with the name of the charity; the date of the gift; the location of the charity; and a detailed description of the property donated. The IRS loves folks like my mother when it comes to descriptions. She writes “three men’s dress shirts, good condition; two pairs work shoes, never worn” and so on, noting the condition. That level of description is practically perfect.
As the holiday season approaches, I hope that you’ll remember to be charitable. No matter what your individual situation, you can likely do something good from donating cash to a used prom dress. Even if you can’t claim a donation, you can take a hour out of your week to be a bell-ringer for the Salvation Army, deliver meals to the homeless or shovel some snow for a shut-in. Never underestimate the difference that one person can make.
It’s been a tough year for a lot of folks. Everyone deserves a little happiness at the holidays.
I’d love to hear which charitable organizations you support, or organizations that are actively still looking for donations – I know that Toys for Tots is experiencing a shortage this Christmas and will accept donations through Christmas Eve. Leave your stories and suggestions in the comments below. You never know who you might inspire!Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel.