By Ken Berry
The IRS often puts charitable deductions under the microscope. This area has been ripe for abuse in the past, but the rules for establishing and documenting gifts to charity were recently tightened. As the deadline for filing 2012 returns fast approaches, the IRS is reminding taxpayers and practitioners about these requirements by posting nine tips for securing charitable deductions.
1. To qualify for a deduction, a taxpayer must make the donation to a qualified charitable organization. You can't deduct contributions you make to an individual, a political organization, or a political candidate.
2. Taxpayers must file Form 1040 and itemize deductions on Schedule A. If the total deduction for all noncash contributions for the year is more than $500, taxpayers must also file Form 8283, Noncash Charitable Contributions
, with their tax return.
3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits that may be received in return for a contribution include merchandise, tickets to an event, or other goods and services.
What's It Really Worth?
Generally, a taxpayer may deduct the fair market value of property donated to charity if he or she has held it longer than one year. For some assets, like securities, the fair market value is easily obtainable. But how does someone value clothing that has been gathering dust in the attic or basement or the couch in the family room that's being replaced?
Be aware that the IRS may challenge artificially inflated valuations. The best approach at tax return time is to use a valuation guide provided by a qualified charitable organization. Two of the most popular guides are the ones provided by the Salvation Army and the Goodwill.
Finally, for donations of top-of-the-line property in mint condition, you might take a more aggressive stance than simply using the figures stated in the guides. Of course, property worth more than $5,000, like real estate located in an exclusive area or prized collectibles, should be valued by an independent appraiser.
4. Donations of stock or other noncash property are usually valued at fair market value. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.
5. Fair market value is generally the price at which someone can sell the property (see sidebar).
6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary method. That written record can be a written statement from the organization, a bank record, or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date, and amount of the contribution. A telephone bill meets this requirement for text donations if it shows this same information.
7. To claim a deduction for gifts of cash or property worth $250 or more, the taxpayer must obtain a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.
8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.
9. If a taxpayer donates one item or a group of similar items that are valued at more than $5,000, Section B of Form 8283 must be completed. This section generally requires an appraisal by a qualified appraiser.