Charitable Contributions

Many taxpayers miss the opportunity to get the maximum benefit from the charitable gifts they make because they do not keep the right records or follow the right procedures. To assist those taxpayers, the IRS has issued a list of things everyone needs to know before deducting charitable contributions:

  1. Charitable contributions must be made to qualified organizations to be deductible. The organization you are contributing to should tell you whether it is qualified or not. You may also check IRS publication 78 (www.IRS.gov) that lists most qualified organizations.
  2. Charitable contributions are currently deductible only if you itemize deductions on Schedule A of Form 1040.
  3. Cash contributions and the fair market value of most property generally can be deducted if donated to a qualified organization. Certain rules apply to a donated property such as clothing, household items, cars and boats.
  4. If contribution entitles you to receive merchandize, goods, or services in return - such as admission to an event - you can deduct only the amount that exceeds the fair market value of the benefit received.
  5. You must keep good records of any contribution you make, regardless of the amount. Such records can be a cancelled check, credit card statement, written acknowledgement from the charity, or payroll deduction record.
  6. Only contributions actually made during the tax year are deductible. Pledged contributions will be deducted only in the tax year they are actually paid.
  7. Contributions paid by check or credit card can be included in the year they are made even if you pay off credit card bill or your bank account gets debited in the next year.
  8. Written acknowledgement is required for any contribution of $250.00 or more.
  9. You must complete form 8283, Noncash Charitable Contributions, and attach it to you return for any noncash contributions of items valued at $500.00 or more.
  10. To claim a deduction of any contributions of property valued more than $5,000.00, an appraisal generally must be obtained. You must also fill out Section B of Form 8283 and attach it to your tax return.

 

A Tip on How to Lower Your Taxes

How to Double Your Property Tax Deduction
In most states, property taxes are paid a year behind the year they are assessed (keep in mind some states have no property tax and therefore this would not apply).

In order to double your property tax deduction for this year, pay this year's taxes before December 31. If you can't afford to pay property taxes twice in one year, remember the funds are usually escrowed with your mortgage payment specifically to pay taxes. If you decide to pay additional property taxes, check with your mortgage company to see what your escrow balance for taxes is at that time. Then when you can pay the taxes at year end, take the receipt issued by your department of property taxation and submit it to your mortgage company for reimbursement. They must refund the balance when you show proof of payment of the taxes.

If you can pay additional property taxes, it's a good idea. That deduction may be eliminated, but it won't happen until after the election if it happens at all. Paying now means you will secure at least an extra deduction that others won't.

This technique is great for salespeople who find themselves closing that big deal at year-end, thus experiencing extra cash. It lowers your tax in the time of plenty, and at the same time lowers expenses for the next year which may not hold such fortune. Pre-paid tax deductible expenses provide a good way to manage taxes for anyone who has up and down trends in their income.


What's a Red Flag?!

High amounts for charitable contributions, mileage claims for a small business that does not usually require a lot of travel, unusually high entertainment costs, a home office deduction, or unusual medical expenses are among those deductions that may be scrutinized.

By proving proof in the case of a potentially suspect deduction with the return, you may eliminate the need for the return to be audited. Proof may include copies of cancelled checks, copies of receipts, or an affidavit.