Five Tips for Non-Cash Charitable Contributions

Five Tips for Non-Cash Charitable Contributions

One way to protect the value of your charitable donation deduction is keeping good records. Here are five tips to help ensure your deductions are iron clad.

The IRS is quick to disqualify your non-cash charitable contributions if you do not have adequate records to support your donation. Here are five quick tips to ensure this does not happen to you.

  1. Get a receipt. Whenever you donate items of value please get a receipt from the charitable organization. It should include the name of the organization, the date of the gift, a general description of the item, and that you received nothing in return for your gift.
  2. Break out the items donated. Create a detailed list that includes when you acquired the donated item, the estimated value of the item when acquired, and how it was acquired.
  3. Take a picture of the donation. When itemizing the items to be donated, don’t forget to take a quick photo of the item. Title the photo and place the photo title on the list of items to be donated for cross-reference.
  4. Create a reasonable value of the donation. Use thrift shop values and online resale values for similar items from sites like e-bay to support your claim of value. Do not forget to provide a statement of condition. Your donated items should be in good or better condition.
  5. Know when special rules apply. If you donate an item of high value, you may need to obtain an appraisal. Donated vehicles and boats valued over $500 may require an approved Form 1098-C statement from the charity when they sell the vehicle. If they use the vehicle, you will want a print out of value from an approved vendor like Kelly Blue Book or NADA. If the value is over $5,000, you will want to get an independent appraisal of donated items. Donated stocks and mutual funds will need a statement of value from your investment company and from the charity receiving the goods.*

*Special caution: When donating appreciated stocks and mutual funds owned by you for over one year, do not sell the asset. Conduct a direct transfer of the certificates and have the charity sell the investment. This will maximize the value of your donation and avoid potential capital gain taxes.

 

Research Your Preferred Charities

Often during an audit, what you thought was a qualified deduction to a charitable organization is ruled non-deductable. How can this happen? Here are some hints to make sure your charitable contributions are put to good use, both at the charity and on your tax return.

November and December seem to be the months we are rained upon with charitable organization solicitations. Some of the groups, such as the American Red Cross, the Salvation Army, United Way, and the American Cancer Society are household names. Others are less known. Here are some tips on how to research these organizations prior to donating funds.

1. Charitable organization efficiency. For every dollar you donate, only a percentage of it is actually used to fund programs. Much of your money is used for fundraising and administrative costs. So how do you know which charitable organization is using your contribution most effectively? Here are three web sites that can help you assess potential charities.

2. Avoid Fraudulent Solicitations. It is often best to avoid donating over the phone or via email solicitations. These are two common ways thieves target their victims. Instead of reacting to a phone call or email, a better idea is to pro-actively plan who you wish to give money to each year. An additional benefit of this approach is that you avoid the fees paid to these middlemen fundraisers out of your donations.

3. Confirm the Deductibility. Many smaller organizations will represent themselves as a qualified charitable organization, but have not kept their non-profit status up to date. If unsure whether your desired charity has kept their records up-to-date, you can check the IRS web site for a full list of qualified organizations. Here is the link:

4. Needing a receipt. Remember cash donations $250 or more require a written confirmation from the charitable organization of your donation in addition to your canceled check or bank receipt. If you are not sure whether a confirmation will be forthcoming, limit your deduction to some amount under this $250 threshold.

Document those Non-cash Charitable Donations! – Tips to ensure their deductibility

Too often taxpayers lose out on the opportunity to reduce their income by the value of their donations. Here are some tips to make sure this does not happen to you.

One often over-looked way to reduce your tax obligation is to donate gently used items to a favorite charity. Too often this is done without the necessary forethought to ensure you can deduct the value of these donations on your tax return. Here are some tips to ensure you can receive this tax benefit.

  • Good or Better Condition. Remember only items donated that are in good or better condition can be used as a charitable contribution on your tax return.
  • Document your donation. Fill out a donation sheet each time you donate. The sheet should include the name of the charitable organization, address, date, and types of items donated. It should also include a detailed list of the items donated, their initial value and the donated value. Note the value you are assigning to each item donated.
  • Take a Photo. Use this photo as a visual documentation of what you donated.
  • Get an acknowledgement and receipt. Even if the donation is small, always ask for an acknowledgement of your donation. Even churches should be ready and willing to do this for you.
  • Establish reasonable value. Do not overstate the value of the items you donate. Use places like e-bay, Amazon, the Salvation Army and used book/consignment stores to establish the used values of your items.
  • Donate entire ownership. The IRS does not like donation of part ownership of items. It is always best to make donations with no strings attached.
  • Track your mileage too. Remember even your miles driven to and from the charitable location are deductible too.
  • Have your warning antenna go up. The IRS has special rules for charitable donations. While they can be complex, here are some red flag items that should warrant consultation prior to donating the following:
    • Any stocks and investments owned for one year or longer
    • Any items valued over $250 or $500 or $5,000. Each of these levels can introduce new documentation requirements and a potential requirement for appraisals.
    • Cars, boats, RVs, and other major assets
    • Giving items to unfamiliar charitable organizations

Should you Reduce Your Charitable Giving? – New itemized deduction phase-out causing concern

With the re-introduction of itemized deduction phase-out, does it still make sense to contribute to charities? For most taxpayers, the answer is a resounding yes. Continue to make charitable contributions. Here is what you need to know.

In 2013 federal tax legislation reintroduces the phase-out of itemized deductions for certain taxpayers. Because of this, many who are subject to itemized deduction phase-outs wonder if the benefit of charitable giving is reduced. Here is what you need to know.

  1. Most taxpayers are not impacted. The phase-out of itemized deductions for 2013 is based on Adjusted Gross Income (AGI) in excess of $250,000 for single filers, $300,000 for joint filers ($150,000 for married filing single), and $275,000 for head of household. So if your income is below these amounts your itemized deductions will not be reduced because of the new phase-out rules.
  2. Alternative Minimum Tax (AMT) does not impact charitable giving.If you have been subject to the AMT in the past, please note that charitable giving generally does not impact this alternative tax calculation. Other things like state taxes and property taxes are a couple of items that do impact this alternative tax calculation.
  3. The phase-out calculation is based on income not deductions.  This means that unless you are in a low or no tax state your charitable deductions will probably not be impacted by the deduction phase-out. Why? The itemized deduction phase-out amount is based upon your income. Say, for example, the phase-out calculation will reduce your itemized deductions by $8,000. Income required to produce this phase-out amount will also generate state taxes in most states in excess of this amount. Therefore the phase-out reduction will almost always be absorbed by your state income taxes.

“Are there cases when the phase-out will eat up a lot of your charitable giving? Yes, especially in no or low tax states. Because of this risk it is a good idea to review the phase-out impact on your situation as soon as possible. Otherwise, you might be foregoing an opportunity to reduce your tax liability this year with planned charitable giving.”

Still Time to Make IRA Contributions for 2012

Remember you have until April 15th to fund last year’s IRA contributions. Here is what
you need to know.

Remember you have until you file your tax return to make a contribution to a Traditional IRA or Roth IRA for the 2012 tax year.  The annual contribution limit is $5,000 or $6,000 (if you are age 50 or over).  Prior to making the contribution, if you (or your spouse) are an active participant in an employer’s qualified retirement plan, you will want to make sure your modified adjusted gross income (MAGI) does not exceed certain income thresholds.  There are also MAGI (income) limits to qualify to make Roth IRA contributions.  The limits are:

2012 IRA contribution limits

Contribution limit: $5,000  or $6,000 (with age 50+ catch up provision)

Income limits:

2012 IRA Contributions

Note: Married Traditional IRA limits depend on whether either you, your spouse or both of you participate in a qualified employer provided retirement plan. If married filing separate and either spouse participates in an employer’s qualified plan, the income phase-out to contribute is $0 – $10,000.

How does the phase-out work?

If the phase-rules apply to you and your income is below the “full contribution” amount noted above, you can contribute up to the maximum annual contribution. But what if your income falls between these ranges?

1. First, subtract your income from the higher (phase-out complete) amount to get your contribution income potential.
2. Next calculate the phase out range.
3. Then, divide your contribution income potential by the phase-out range.
4. Take the result times your maximum annual contribution amount.
Example:  Roth IRA contribution limit for a single person, age 40 with MAGI of $115,000; $10,000 contribution income potential (125,000-115,000);  divided by phase-out range of $15,000 ($125,000 – 110,000);  10,000/15,000= .666  x  $5,000 = $3,300 2012 ROTH IRA contribution limit. Rounding rules apply.

If it’s too late for you to make a 2012 contribution, it’s not too late to plan for 2013. Here are the limits for 2013.

2013 IRA contribution limits

Contribution limit: $5,500 or $6,500 (with age 50+ catch up provision)

Income limits:

2013 IRA Contributions

Note: Married Traditional IRA limits depend on whether either you, your spouse or both of you participate in a qualified employer provided retirement plan. If married filing separate and either spouse participates in an employer’s qualified plan, the income phase-out to contribute is $0 – $10,000.

A final thought: If your income is too high to take advantage of these IRAs you can always make a non-deductible contribution to an IRA.  While the contributions are not tax-deferred, the earnings are not taxed until they are withdrawn.