It’s a critical time of year for the not-for-profit sector. Historically, a significant amount of charitable donations occur in the last weeks, days and even hours of the year. In fact, many charities are using “Giving Tuesday” on December 1, 2015, as a catchy way to launch their year-end fundraising campaigns.
But before you open your checkbook, clean out your attic or donate time to a charity, here are some tips to help ensure you can deduct contributions to your favorite charitable organization — and minimize your 2015 tax bill.
Giving Trends
Charitable contributions reached approximately $358.38 billion in 2014, finally surpassing the prerecession peak of $355.17 billion in 2007, according to the Giving USA 2015 study. Last year was the fifth consecutive year of increased generosity.
In 2014, the average U.S. household donated $2,030 to charities. Individuals donated 72% of the total amount given to charities in 2014, far more than all other sources (corporations, foundations and bequests) combined. Donations from individuals grew 5.7% in 2014.
Following IRS Guidelines
In order to deduct charitable contributions on your personal tax return, you must itemize deductions and follow these rules:
- Your contributions must be made to “qualified” organizations. To see whether an organization qualifies, visit the IRS’s online search tool, Exempt Organizations Select Check. Giving money to an individual or a foreign organization generally isn’t deductible, except for donations made to certain qualifying Canadian not-for-profits.
- For a charitable donation of cash, regardless of the amount, you must have a bank record or a written document from the charity. Bank records include canceled checks, bank or credit union statements, and credit card statements. These statements should show the name of the charity, the date and the amount paid. Credit card statements should also show the transaction posting date.
- Clothing and household items donated to charity generally must be in good used condition or better. However, this requirement may be waived for deductions of clothing or household items of more than $500 if you include a qualified appraisal with the return. Household items include furniture, electronics, appliances and linens.
If a contribution entitles you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
Documenting Higher Value Gifts
IRS substantiation rules vary depending on how much you’re claiming for each contribution:
Gifts of $250 or more (cash or property). You must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization (in other words, a receipt).
The acknowledgment must state whether the organization provided goods or services in exchange for the gift. If so, the organization must provide a description and a good faith estimate of the value of the goods or services. One document from an organization can satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.
Deduction for a noncash contribution worth more than $500. IRS Form 8283 must be filled out and attached to your return. You are also required to maintain written records with respect to each item of donated property that include:
The approximate date the property was acquired and the manner of its acquisition,
- A description of the property,
- The cost or other basis of the property,
- The fair market value of the property at the time it was contributed, and
- The method used in determining its fair market value.
Similar items of property are aggregated for purposes of the substantiation rules. The term “similar items of property” is defined to mean property of the same generic category or type, such as clothing, jewelry, furniture, electronic equipment, household appliances or kitchenware.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. IRS Form 1098-C or a similar statement must be provided to the donor by the organization and attached to the donor’s tax return.
Deduction for a contribution of noncash property worth more than $5,000. Unless you’re giving publicly traded securities, you must obtain a qualified appraisal. (The threshold is $10,000 for nonpublicly traded securities.) If you claim a deduction for a contribution of noncash property worth more than $500,000, you must attach the qualified appraisal to your return.
Making Last-Minute Donations Count
Contributions are deductible in the tax year they’re made, but many people put off donating until the last minute. Fortunately, you have until December 31 to donate for the 2015 tax year. Donations made online, by phone or using social media that are charged to a credit card on or before midnight on December 31 count for 2015 — even if the bill isn’t paid until 2016. Mailed checks also count for 2015 as long as they’re postmarked no later than December 31.
If you plan to deduct a sizable charitable contribution on your 2015 tax return, consult with your tax adviser before year end to ensure you’re following all the rules.
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