As the annual tax collection season rolls around, do not forget about all the good you have done over the past year. If you or someone you know frequently donates to their community shelters, clothing drops, or local nonprofit organizations, these individuals may qualify for charitable deductions. If you itemize your deductions, charitable contributions deductions can reduce the total amount of taxable income which may help lower your tax bill.
Before we discuss the documentation and proper files to keep on record for charitable deductions, let’s start with a bit of background. First and foremost, a charitable contribution or donation must be made out to or given to an a qualified organization. This means that donating money or property of any form must be to an IRS approved charitable organizations. You cannot deduct contributions made to specific individuals, political organizations and candidates, etc. If your goal in donating is to receive a charitable tax deduction, it is important to know if the Organizations are eligible to receive tax-deductible charitable contributions.
Charitable deductions can apply to more than just donated cash or checks; personal items, clothing for example, may also entitle an individual to charitable tax deductions. These types of donations require Form 8283, Non cash Charitable Contributions, if the amount is over $500.
In addition, charitable contributions cannot be deducted with no limit. Generally, you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases.
When it comes to filing for charitable deductions, there are certainly a few pieces of information that will be needed as proof of contribution.
Below is our list 5 of must dos and important documents to keep on file for charitable deductions:
2. Any applicable written form of communications: email, letter, thank you note.
Note: Written communications should contain the name of the organization, the amount of the contribution, and the official date of the contribution. Any cancelled checks
3. Any cancelled checks
4. Bank records
5. If charitable contribution is $250.00 or more, keep on file with a written contemporaneous acknowledgement that you obtained from the qualified organization. This document should include the amount the amount of cash/check donated, as well as a description of additional items or property included.
Note: For claimed contributions over $5,000, generally a qualified appraisal prepared by a qualified appraiser must be obtained.
A written disclosure to a donor is necessary if the institution provided goods or services in turn for the donation. If the organization did provide goods or services, provide a description and honest estimate of the monetary value of those goods or services.
To learn more about charitable deductions, talk to the NYC CPAs at 212 Tax.