Individuals and businesses making charity contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years.
Some of these changes include the following:
Clothing and household item rules
To be tax-deductible, clothing and household items donated to charity generally must be in “good” used condition or better. A clothing or household item for which a taxpayer claims a deduction of more than $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
Donors must get a written acknowledgment from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for monetary donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution.
Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Misc. charity-giving reminders
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
Contributions are deductible in the year made: Thus, donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn’t paid until 2014. Also, checks count for 2013 as long as they are mailed in 2013.
Check that the organization is eligible: Only donations to eligible organizations are tax-deductible. Exempt Organization Select Check (www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check) is a searchable online database available on IRS.gov that lists most organizations eligible to receive deductible contributions.
In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
You must itemize: For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A) or 1040EZ.
A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2013 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
Keep good records and receipts: For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property.
If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
Car donation rules: The deduction for a car, 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. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
Noncash contribution form: If the amount of a taxpayer’s deduction for all noncash contributions is more than $500, a properly-completed Form 8283 must be submitted with the tax return.
Tax-free IRA charitable distributions
This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity.
An IRA owner, age 70 or older, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income — resulting in lower taxable income for the IRA owner. Not all charities are eligible.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution.
See Publication 590: Individual Retirement Arrangements (IRAs) for more information on qualified charitable distributions.