With less than two weeks left in 2013, individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. The IRS has issued guidance on a number of items concerning charitable contributions from IRAs, donations of clothing and household items, and monetary donations.
Special Tax-Free Charitable Distributions for Certain IRA Owners
Owners of individual retirement arrangements (IRAs) that are age 70 1/2 or over can directly transfer tax-free up to $100,000 per year to an eligible charity. If you fall into this category, you better act soon as this provision is currently scheduled to expire at the end of 2013. This option 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 for this provision. To view other fine print on which charities are eligible, how funds must be transferred, and more, see Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Charitable Contributions of Clothing and Household Items
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 over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. When donating clothing and household items, don’t forget to ask the charity for written acknowledgment from the charity for all gifts worth $250 or more. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations
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 for the taxpayer to be able to deduct the charitable donation on his or her taxes. 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 made by cash or by check, electronic funds transfer, credit card, and payroll deduction all count as monetary donations. For payroll deductions, taxpayers need 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.
Keep in mind that 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.
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. The IRS provides Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition to organizations listed in this database, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed.
- 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 for your personal situation.
- 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.
- 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.
- If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
- And, as always it’s important to keep good records and receipts.
IRS.gov has additional information on charitable giving including:
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.