Biz Bits: Maximize tax benefits from charitable gifts
Tip of the Week
You know your gifts of cash, time and household items may be tax deductible, but what do you need to do to verify that and maximize your deduction?
"Being charitable can cut your taxable income, as long as you follow a few simple rules," says Jessi Dolmage, spokesperson for digital tax preparation brand TaxACT. "Those include giving to eligible organizations and keeping accurate records."
To determine if you've donated to eligible organizations, search the IRS' database of Exempt Organization Select Check at www.irs.gov. Most religious organizations and government agencies are eligible, even if they're not listed in the database.
Keeping detailed records is important for accurate valuation of your gifts (and in turn your tax deduction) and in the unlikely event of an audit. Dolmage says records should include organization name, donation date and amount.
For monetary gifts, keep the written acknowledgment from the organization with the donation date and amount. A canceled check or card statement with the transaction date also suffices for gifts under $250. If you receive merchandise, benefits or privileges in exchange for a gift, you must subtract the value of those from the original gift amount. If your payment is more than $75, the organization must give you a written statement with a description and estimated value of the merchandise, goods or services.
Noncash donations, such as clothing, kitchen gadgets and furniture, must be in good condition or better. The tax-deductible amount of those items is the fair market value (FMV), the price if they were exchanged between willing buyers and sellers. Special rules apply to donations of cars, boats airplanes, property subject to debt, investments that have appreciated in value and inventory from your business.
For noncash donations, document the charity name, date and location of the items, along with a reasonably detailed description of the items. If you receive a receipt from the charity, keep it with your records.
The IRS requires additional documentation for vehicle donations. You must receive a written acknowledgment or Form 1098-C from the charity for the vehicle.