Many people enjoy giving to charities of all kinds during the holidays. Whether you are donating money, time, or new and used goods, there are many ways to support causes you care about during the winter months. From a tax standpoint, however, there are some important things to know when donating money and items during the holidays. When donating to organizations this holiday season, keep the following tips in mind.
Keep Detailed Records of All Donations
Maintaining proper documentation is integral when making charitable donations for which you hope to receive tax deductions. This documentation acts as a record that you contributed a certain amount, during what year, and to whom and will detail your actions in the event of an audit. The IRS lists the following items as acceptable documentation for charitable donations of cash, check, or other monetary value:
- Banks Records
- Payroll deduction records
- Other forms of written communication from the organization to which you donated that include the organization’s name, amount donated, and date of contribution.
It is also recommended to document that you did not receive anything in return for your contribution- not so much small tokens such as cards, mugs or branded collateral, but there are rules for larger scale gifts. If you do receive a sizable gift in return for your donation, find out if there is a specific protocol for deductions in your case.
Non-Cash Items Can Be Deductible Too
Many organizations hold food drives, clothing collections, and a number of other means of collecting goods for charitable organizations. These types of donations require specific documentation and sometimes a specific form from the IRS depending on the item, with more stringent rules for more valuable items.
A general rule of thumb entails donations worth less than $250 require a receipt that includes a description of items donated, date of donation, and the name of the organization. Gifts worth over $500 but under $5,000 require IRS Form 8283 for Noncash Charitable Contributions. Gifts of over $5,000 value require a special appraisal from the IRS.
It is important to note that if the noncash item you are donating to charity is a car, the IRS has a specific set of requirements in order to receive a deduction. This includes a valuation of that vehicle, evaluating the organization that will be receiving the car, and determining the amount you can deduct.
Not All Organizations Qualify For Charitable Contributions
When donating to organizations during the holidays (or any time of year), it’s important to remember not all organizations qualify for tax donations when you donate to them. While most nonprofit organizations are eligible for deductions, donations to some types of organizations are not actually tax deductible. The IRS details the following types of organizations as those that are not deductible:
- Civic leagues, social and sports clubs, labor unions, and chambers of commerce
- Foreign organizations (except certain Canadian, Israeli, and Mexican charities)
- Groups that are run for personal profit
- Groups whose purpose is to lobby for law changes
- Homeowners’ associations
- Political groups or candidates for public office
If you are unsure whether the organization to which you hope to contribute will be eligible for a tax deduction, consult IRS Publication 526 “Charitable Contributions.”
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