The holiday season is upon us. In addition to the personal satisfaction that comes from giving, many individuals and business owners ensure their gifts are qualified tax deductible charitable donations. Charitable giving benefits worthy organizations, but it can benefit you too by saving money on your taxes. However, not every donation qualifies. Consider the following five tips for making charitable donations that are tax deductible.
- Donate to a qualified organization. Most organizations know if they qualify, so you can simply ask them. If in doubt, you can search the IRS’s online database. Keep in mind, donations made to individuals are never accepted as tax deductions.
- Don’t count the entire amount if you receive something in return. For example, if you make a donation to a charitable organization and receive tickets to a ball or dinner in return, you’ll need to subtract the value of the tickets.
- Calculate the fair market value. Whether you are personally donating clothing or household goods or you are a business owner donating used computers, you’ll need to honestly calculate the amount. Fair market value is defined as the amount for which you could sell the items, not what you paid originally or what a new item would cost.
- Keep a written record. Whether the donation was an item, cash, check or anything else, keep a paper trail. Most organizations will give you a letter acknowledging the donation that contains the amount and the date the contribution was made. Text message donations are popular now. Be sure to keep the phone bill that indicates who the donation was made to and when.
- Fill out the right forms. To count charitable contributions, you must fill out a 1040 and itemize all deductions. If you donate more than $500 in non-cash goods, you’ll need to fill out IRS Form 8283. If those goods are valued at more than $5,000, be sure to complete section B of Form 8283. You will also be required to get an appraisal from a legitimate appraiser if you donate a group of similar items totaling more than $5,000.
Navigating the tax system can be daunting. Contact us with all your tax needs and questions.