It’s the end of the year, and it’s time to evaluate what we can do now to impact our tax bill. The holidays are a great time to consider making donations to the charitable organizations of your choice, not only because you can cash in on a great tax deduction, but also because it’s the holiday season, and we have much to be thankful for. As you evaluate what you want to give to whom, consider how it will impact your tax return.
Here are some guidelines to tax deduction rules:
Monetary Donation Guidelines:
The IRS requires that you have a record of the charity name, date donated, and amount. This requirement can be met via bank records or through written correspondence from the charity. Bank records include bank statements, canceled checks, or credit card statements.
Rules for Donating Clothing and Household Items:
Junk doesn’t count! Clothing and household items that are donated to a charitable organization must be in good used condition or better (if under $500). For donations of items worth over $500, obtain a written appraisal of the item and file it with your return.
Deductions for Donating Vehicles:
When it comes to vehicles, including cars, trucks, boats and aircraft, be sure to follow the rules (there are a lot of them!).
Popular opinion is that you can take a deduction that is equal to the full fair market value (or Blue Book value) of the vehicle. Now, the amount that can be deducted is equal to the amount that the charity can get when they sell the vehicle. However, there are exceptions, the most notable of which is that if the charity sells the car well below market value to a needy individual, you can deduct the full market value of the vehicle. Lastly, for vehicles worth $500 or less, a full market deduction is allowed.
Here are some other notes:
– Contributions are only deductible in the year that they were made. For example, charging a donation to a credit card on 12/31/10 counts for 2010 (even if the bill isn’t paid until 2011). Also, checks written and mailed by 12/31/10 count.
– Consider capital gains. Certain assets that have appreciated (and been held for more than 12 months) may provide a great tax deduction, plus not having to pay capital gains.
– Only qualified charities are acceptable. Go to IRS.gov and do a charities search to be sure that your charity of choice is accredited.
– Save all of your receipts! Donations are only valid if you have proof (and usually it needs to be filed with your tax return).
– Be proportionate. Check with your tax professional when it comes to your AGI (adjusted gross income) and tax donations. Generally, you can’t deduct donations that are more than 50% of your AGI in cash.
Other Helpful Resources:
Fair Market Guide for Used Items
A Final Look at the Estate Tax 2010
A Guide to the Small Business Jobs Act of 2010