Taxpayers who donate to charity should check out these resources

October 25, 2019

Taxpayers who donate to a charity may be able to claim a deduction on their tax return. These deductions basically reduce the amount of their taxable income. Taxpayers can only deduct charitable contributions if they itemize deductions.

Here are some resources for people making donations:

Tax Exempt Organization Search
Taxpayers must give to qualified organizations to deduct their donations on their tax return. They can use this tool to find out if a specific charity qualifies as a charitable organization for income tax purposes.

Publication 526, Charitable Contributions
This pub explains how taxpayers claim a deduction for charitable contributions. It goes over:

  • How much taxpayers can deduct.
  • What records they must keep.
  • How to report contributions.

Publication 561, Determining the Value of Donated Property
Taxpayers generally can deduct the fair market value of property they donate. This publication helps determine the value of donated property.

Form 8283, Noncash Charitable Contributions
Taxpayers must file form 8283 to report noncash charitable contributions if the amount of this deduction is more than $500. The instructions for this form walk taxpayers through how to complete it.

Schedule A, Itemized Dedications
Taxpayers deducting donations do so on Schedule A. The instructions for this form include line-by-line directions for completing it.

Frequently asked questions: Qualified charitable distributions
Taxpayers age 70 ½ or older can make a qualified charitable distribution from their IRA – up to $100,000 – directly to an eligible charity. It’s generally a nontaxable distribution made by the IRA trustee to a charitable organization. A QCD counts toward their minimum distribution requirement for the year.


A Tax Guide For Holiday Giving

December 10, 2016

The holiday season is a time for gift giving. At this time of year, your clients may give gifts to friends and family, charity, employees, and business associates and service providers. Here’s a quick guide to the tax consequences associated with giving gifts.

Family and Friends

Holiday gifts for friends and family generally have no tax consequences, unless your client is especially generous at holiday time. For 2016, up to $14,000 of gifts to each donee can be sheltered from gift tax by the annual gift tax exclusion. What’s more, if the gift giver is married and his or her spouse joins in a gift, the per-donee exclusion is doubled to $28,000.

Gifts in excess of the annual exclusion are likely to be tax free as well. Under current rules, a taxpayer is allowed a gift tax exclusion of $5.45 million for 2016. However, any gifts during a calendar year that exceed the annual exclusion must be reported on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return; even if no tax is due, the form must be filed.

Charity

Typically, a client can fully deduct holiday contributions of money to religious, educational or other qualified charitable organizations. For big donors, the charitable contribution deduction is generally limited to 50 percent of adjusted gross income (AGI), although lower AGI limits may apply to certain contributions.

Remind your client that year-end gifts of cash are deductible when paid, regardless when the contribution is pledged. So, for example, a charitable gift that’s pledged in 2016 won’t be deductible until 2017 if that’s when the actual payment to the charity is made. On the other hand, a charitable contribution made by credit card is deductible in the year the charge is made, regardless when the credit card bill is actually paid. Similarly, a check that is unconditionally delivered or mailed to a charitable organization is deductible on the date of delivery or mailing, so long as the check subsequently clears in due course. The IRS says contributions made by text message are deductible in the year the text message is sent if the contribution is charged to a telephone or wireless account.

Typical holiday gifts of property, including canned goods for a local food bank or toys for needy children, for example, are also deductible. Clients should keep receipts showing the value of the donated property. In the case of used property, a deduction is allowed only if the item is in good or better condition. Clients will generally need an acknowledgement from the charity for cash donations of $250 or more and for all non-cash donations unless it is impractical to get one, for example, when items are left in a charity’s drop box.

Attendance at a holiday fundraiser can yield a deduction, but only for part of the cost. For example, suppose a client pays $75 for ticket to a holiday gala, but the fair market value of the event is just $25. The additional $50 is treated as a deductible charitable contribution.

The value of services provided to a charitable organization is not deductible. However, your clients can deduct out-of-pocket expenses incurred in performing services for a charity. Car expenses, such as gas and oil, that are connected with the performance of charitable services are also deductible. For convenience, clients can claim a deduction of 14 cents per mile for charitable driving, provided they maintain records substantiating the time, place and charitable purposes of the trips.

Employees

As a general rule, gifts for employees aren’t treated as gifts at all; they are treated as additional compensation to the employees. A holiday bonus, for example, must be treated as part of an employee’s wages, and is subject to income tax withholding and payroll taxes. As such, the bonus is deductible just like any other compensation so long as it is a reasonable and necessary expense of the employer’s business.

Gifts of “small value,” such as holiday turkeys or a gift baskets, may qualify for exclusion from employees’ incomes as de minimis fringe benefits. However, the IRS has ruled that cash equivalents, such as holiday gift cards, cannot qualify as de minimis fringe benefits because it is administratively impractical to account for them.

Business Associates

Holiday gifts for clients, customers and other business associates qualify as deductible business expenses. However, there’s a catch: a taxpayer can deduct only $25 annually for business gifts given directly or indirectly to any one person. Promotional items, such as calendars or pens, don’t count toward the $25 limit if each item costs $4 or less, has the taxpayer’s name clearly and permanently imprinted on the gift, and is one of a number of identical items widely distributed.


Six IRS Tips for Year-End Gifts to Charity

November 17, 2014

Many people give to charity each year during the holiday season. Remember, if you want to claim a tax deduction for your gifts, you must itemize your deductions. There are several tax rules that you should know about before you give. Here are six tips from the IRS that you should keep in mind:

  1. Qualified charities. You can only deduct gifts you give to qualified charities. Use the IRS Select Check tool to see if the group you give to is qualified. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.
  2. Monetary donations.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
  3. Household goods. Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.
  4. Records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.
  5. Year-end gifts.  You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.
  6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. For more information visit IRS.gov.

%d bloggers like this: