'Tis the giving season. Many taxpayers, however, cheat themselves out of valuable charitable deductions by underestimating the value of items given away or not hanging on to receipts. Here's a checklist of tips for giving to charities and receiving the greatest tax benefit:
1. Keep records of every contribution: Sounds like a no-brainer, right? This is a huge mistake many taxpayers make when giving a donation. The charitable contribution will be disallowed for any monetary contributions unless the donor maintains a record of it. This applies to any contribution of money, regardless of the amount.
Be sure that you have bank records, cancelled checks or written acknowledgements for all cash contributions that show the name of the charitable organization, the date and the amount of the donation.
For monetary donations or items over $250 in a single donation, the IRS requires an additional written acknowledgement from the organization. Taxpayers claiming over $500 for all contributed property must complete and file Form 8283, Noncash Charitable Contributions.
2. Hold onto your pledge cards: Taxpayers who have had charitable contributions deducted from their paychecks are required to hold on to their pledge cards from the charity, pay stubs, and their Form W-2 or other employer information that states the total amount of donation.
Again, bank records, cancelled checks or written acknowledgements, plus the name, date and amount of your donation are crucial.
3. Figure out and declare the full value of donated item: When declaring the value of donated clothing or items for tax purposes, determine the fair market value. This can be the price the item might sell for at a garage sale or thrift store.
IRS Publication 561 Determining the Value of Donated Property is a good source to use and your tax advisor can also help you with this. Generally, household items and clothing must be in at least good-used condition to be deductible.
4. Be sure the charity is recognized as legitimate by the IRS: Check that your donations are made to a charity or non-profit organization that the IRS considers legitimate.
Approved non-profits include those whose focus is religious, charitable, educational, literacy, preventing cruelty to children and animals, or serving military veterans. Even some Mexican, Israeli and Canadian charities are eligible through treaties with those countries.
The IRS has Select Check, a searchable tool on its website, www.irs.gov, that identifies eligible organizations.
5. Taxpayers can generally deduct up to half of their adjusted gross income in one tax year: The IRS allows generous taxpayers to carryover deductions that exceed their charitable contribution amounts for up to five years. There are some categories of non-profits in which the IRS only allows up to 30%, so check with your tax pro.
6. Deduct your mileage or actual costs of transportation to and from charitable events: You cannot deduct the value of your time, but if you're a volunteer in an official capacity, you can deduct your out-of-pocket expenses and volunteer mileage at 14 cents per mile. Taxpayers need to keep records of their mileage on a calendar or app.
7. Hosting a foreign exchange student: Taxpayers who have written agreements to host students may be able to deduct $50 a month for expenses. Again, check with your tax pro to see if you and your program qualify for this.
8. Uniform maintenance is deductible: If uniforms are required for volunteer service, the costs of cleaning and maintaining them is tax deductible as a charitable contribution.
Did your spirit of giving just grow stronger? It should, especially when you can give to charities and receive the greatest tax benefit for you and your family. Enjoy the journey!