As you may have heard on the news, Charitable Giving is one of the bargaining chips on the table for the ‘Cliff Talks’. Whatever happens with those talks, the good news is that for the 2012 tax year, those incentives for reducing your tax burden are currently allowable – so be sure to use them! But you must be aware that this deduction is one of the most abused on people’s taxes, so Congress has enacted lots of rules regarding documenting your donations.
How do I make sure that my contribution will be allowed?
Good question, and very smart to ask it. Many people neglect to adequately research what will be allowed for their contributions. Here is a primer to get you started…
You can claim charitable gifts as deductions only if you itemize your Deductions (Schedule A).
Make sure your Charity Organization is approved by the IRS!
Don’t risk having your contribution disallowed. Check the IRS website page on ‘exempt organizations’. (You will need the contact information on your organization to put into the search.) Or be absolutely certain that the organization has received their 501(c)(3) status.
A canceled check may not be sufficient proof. Is your charitable gift more than $250? Then you must obtain a written acknowledgment from the charity, with:
- Name and address of the charity
- The date of the contribution
- The amount of cash or a description of any property contributed
- A list of any significant goods or services received in return for the donation, or a specific statement that the donor received no goods or services from the charity. Very Important! Without this disclaimer, your gift will not be tax-deductible.
- With Non-cash contributions more than $500 , you must attach IRS form 8283 to your taxes
- Get qualified written appraisals for any property or physical items valued above $5,000 – and be sure to find out from the IRS or from your tax advisor what qualifies as a ‘qualified appraisal’.
Special situation for 2012 – Things to think about:
- 2012 may be the last year that there is no “phase-out”, or limitation rule on itemized deductions. This means that:
- For 2012 you can take charitable contributions up to the Adjusted Gross Income limit: 50% for cash donations, 30% for securities (again, be sure that the charity is allowable by the IRS).
You can use your securities…here are a couple of options:
- Selling ‘loser’ shares can help your tax burden by providing you with a resulting capital loss on your return. Then you can give the sales proceeds to the charity and claim the write-off. This gives you a double-impact for your gift.
- Give away ‘winner’ shares to charity instead of giving cash. Your charitable donation will equal the full current market value at the time of the gift. Plus, you walk away from the related capital gains tax – a double tax-saver. If the organization is on the approved tax-exempt list of the IRS, they will then be able to sell your donated shares without paying the IRS tax on your gift.
This gives you a glimpse of some of the requirements for charitable donations, but the rules can get much more complicated. It’s best to contact a qualified tax attorney to be sure that all your deductions are entered in a verifiable way.
For help with these and other tax issues, contact Litchfield County, Connecticut tax attorney Martha Miller, admitted to practice in CT, NY, and before the US Tax Court at 860-435-4666. We accept state tax problems for CT, MA and NY, and we accept U.S. federal tax problems from any location in the world.