By A.J. Gross, C.P.A., E.A.
Donating to charitable causes is a good thing. You are helping others in need. For your generosity, the IRS allows you to claim a tax deduction. If you donate to charities, you should understand the basic record keeping rules for claiming a tax deduction.
Rule 1: Less than $250 of cash donations to any one charity. For example, you donated to Red Cross three times during the year, $75, $100, and $25 for a total of $200. Then you donated $200 to United Way. You donated less than $250 to any one charity. You must keep one of the following. 1) Bank record such as cancelled check or bank statement 2) Receipt from charity 3) Pay stub with a letter from the charity
Rule 2: More than $250 of cash donations to any one charity. Every week you donated $10 to your local church. The total amount donated was $520. You must retain a letter from the charity detailing the amount contributed. The letter must be dated by the due date for filing the tax return.
Rule 3: Donated less than $250 of items. Non-cash contributions are treated a little differently than cash contributions. The non-cash rules apply for the total amount contributed regardless of how many charities you donated to. For example, you donated $100 worth of items to Red Cross and $400 to United Way. You would use the $500 and greater non-cash contribution rules for record keeping purposes. For less than $250 of items donated, you must obtain a receipt from the charity. You should also note the fair market value of items donated, original cost of items donated, and the amount you claimed as a tax deduction.
Rule 4: Donated items of more than $250 but less than $500. You must obtain a written acknowledgement from the charity. The written acknowledgement must be dated prior to the due date of the tax return.
Rule 5: Donated items of more than $500 but less than $5,000. This rule is in addition to Rule 4. You must have documentation on whether you received the items by purchase, gift, exchange, or inheritance. You should note the estimated date you purchased the items and the original purchase price.
Rule 6: Donated items of more than $5,000. This rule is in addition to Rules 4 and 5. You must obtain a qualified appraisal for the donated items.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.
A.J. Gross, C.P.A., E.A. is President of ALG Tax Solutions. A.J. Gross can be contacted at AJGross@algtaxsolutions.com or www.ALGTaxSolutions.com.
This was printed in the January 12, 2014 - January 25, 2014 edition.