5 guidelines.
by barry j. friedman, cpa
industrynewsletters
charitable contributions are deductible, says the irs, only if you itemize deductions.
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but how do your clients know that the charity they are donating to is qualified?
and further, they are deductible only if you make contributions to qualified charitable organizations. the tax agency reminds us that contributions to individuals are never deductible.
the irs notes that you can determine whether the organization qualifies as a charity for income tax deduction purposes if you refer to the agency’s tax exempt organization search tool.
what if you receive a benefit from the contribution – such as a public tv station offering a dvd of the program you were just watching – or other goods or services? what about obtaining admission to a charity ball or banquet, or receiving tickets to a theatrical performance or sporting event for your donation? the irs says you only can deduct the amount that exceeds the fair market value of the benefit received.
and then there’s the sticky problem of contributing cash, checks or any other monetary gift – how should you handle this? the tax agency recommends that you maintain a record of the contribution.
- it can be a bank record or contemporaneously written communication from the qualified organization. it should contain the name of the charity as well as the amount and the date of the contribution.
- you generally can deduct the fair market value of any other property you donate to qualified organizations.
- for a contribution of $250 or more – including cash and property – you must obtain and keep in your records a written acknowledgment from the qualified organization that indicates the amount of cash and a description of any property contributed.
- make sure that the acknowledgment says whether the organization provided any goods or services in exchange for the gift. if yes, you need to provide a description and a good-faith estimate of the value of those goods or services.
- a document from the qualified organization may satisfy both the written communication requirement for monetary gifts and the contemporaneously written requirement for all contributions of $250 or more.
for a deduction of a noncash contribution that’s more than $500, fill out form 8283, noncash charitable contributions, and attach it to your tax return. and you’ll need a qualified appraisal of the noncash property and must fill out form 8283, section b, to claim the deduction for the noncash contribution of property worth more than $5,000.
you also should know that special rules apply for donations of certain types of property that have appreciated in value, including the following:
- automobiles
- inventory
- investments
for more information, you can refer clients to publication 526, charitable contributions. if they need to determine the value of their noncash contributions, they can take a peek at publication 561, determining the value of donated property.