NEW YORK (MainStreet) — The Internal Revenue Service recently published Tax Tips for ‘The Season of Giving’ reviewing the rules for claiming a tax deduction for donating to church or charity.
Here are some of the tips, with highlights by me:
- Contribute to qualified charities. If you plan to take an itemized charitable deduction on your 2012 tax return, your donation must go to a qualified charity by Dec. 31. Ask the charity about its tax-exempt status. You can also visit irs.gov and use the Exempt Organizations Select Check tool to check if your favorite charity is a qualified charity. Donations charged to a credit card by Dec. 31 are deductible for 2012, even if you pay the bill next year. A gift by check also counts for this year as long as you mail it in December. Gifts given to individuals, whether to friends, family or strangers, are not deductible.
- Know what you can deduct. You can generally deduct your cash contributions and the fair market value of most property you donate to a qualified charity. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
- Keep records of all donations. You need to keep a record of any donations you deduct, regardless of the amount. You must have a written record of all cash contributions to claim a deduction. This may include a canceled check, bank or credit card statement or payroll deduction record. You can also ask the charity for a written statement that shows the charity’s name, contribution date and amount.
Let me expand on these tips.
- You cannot deduct money or items given directly to an individual or family, regardless of how needy the person or family may be. For example, you cannot deduct the cost of food or clothes given to a person or family whose home was destroyed by Hurricane Sandy. You must give the food or clothes to an organized charity that will in turn distribute it to hurricane victims, such as the Red Cross.
- It is extremely important to have proper documentation for your cash contributions, regardless of the amount. Whenever possible give a check, not cash. If you give cash you must get a written receipt from the charity. You cannot deduct the $1 you give to the Salvation Army Santa unless he gives you a receipt!
- If you give $250 or more in one gift, you must get a written receipt or acknowledgement from the charity at the time the donation is made. This receipt or acknowledgement must include the name and address of the organization and the date and amount of the contribution, and – very important – must include the statement “No goods or services were provided by the organization in return for the contribution.”
- If you donate clothes, food, household items, furniture, etc., make and keep a detailed list of the individual items (for example, “three dress shirts”) you are giving that includes the condition (such as good, excellent or new) of the items. If you put a bag full of clothes in the Goodwill bin you must make a list of what is in the bag. And be sure to note the name and address of the organization.
- You can deduct any “out of pocket” expenses incurred in the course of providing volunteer services to a qualified church or charity, including 14 cents per mile if you use your car. As with any other contribution, you must keep a record of these expenses. It couldn’t hurt to get a letter from the charity that identifies your volunteer activity, with the statement about goods or services included. If you bake a cake or cookies for a church holiday bake sale you can deduct the cost of the ingredients. You cannot deduct the value of your time when volunteering.
- If you buy a ticket to a fundraising activity such as a holiday dinner, you can deduct only that amount of the cost that is above and beyond the cost of the meal provided. Often the charity will identify the amount you can deduct on the ticket.
- Tickets bought for a holiday raffle or 50-50 sponsored by a church or charity are not deductible as a contribution, unless you give the raffle ticket back to the charity and do not participate in the drawing. The cost of raffle tickets may, however, be deductible as a “gambling loss” if you are reporting gambling winnings on your Form 1040.
- Very important: You must be able to itemize to claim a tax deduction for donations to church or charity.