All giving is valuable to those in need, but from a tax perspective, not all giving is rewarded with a tax write-off. Here is what you need to keep in mind:
1. YOU MUST ITEMIZE FOR FEDERAL FILING TO DEDUCT CHARITABLE GIVING. You can be as generous as you want, but a tax deduction is limited to those who itemize personal deductions and forego the standard deduction amount.
2. DEDUCTIONS ARE ALLOWED ONLY FOR IRS-APPROVED CHARITIES. You cannot claim a deduction for money you give directly to individuals. Check to see that a charity is IRS-approved at www.irs.gov/Charities-&-Non-Profits/Search-for-Charities.
3. ANNUAL DEDUCTIONS ARE LIMITED WITH RESPECT TO ADJUSTED GROSS INCOME. You cannot deduct cash donations in excesss of 50% of your adjusted gross income. Unused deductions can be carried forward for up to 5 years.
4. DEDUCTIONS REQUIRE SUBSTANTIATION. Your word or even a canceled check isn’t good enough. If you donate $250 or more, you must obtain a written acknowledgment from the organization, specifying your gift and stating that no goods or services were received in exchange. Special rules apply for donations of vehicles.
5. SOME GIFTS REQUIRE APPRAISALS. If you donate property valued at more than $5,000, you need a qualified appraisal. This must be done by someone who has the credentials to be a qualified appraiser.
6. DEDUCTIONS OF APPRECIATED PROPERTY PROVIDE A DOUBLE TAX BENEFIT. If you donate appreciated property that you have owned for more than a year, such as stock, you can deduct the value of the property on the date of the gift. What’s more, you don’t have to report any capital gain on the appreciation; it effectively becomes tax free to you.
7. CASH DONATIONS MADE BY YEAR-END ARE DEDUCTIBLE NOW EVEN IF RECEIVED IN THE NEW YEAR. If you mail a check to the charity on December 31, it is deductible on your 2012 return, even though the charity does not receive the gift until 2013. Also, you can charge a donation to a credit card; you can take the deduction in 2012 even if you pay the credit card bill in 2013.
8. OUT OF POCKET EXPENSES ARE DEDUCTIBLE. If you spend any money helping a charity, you can deduct those if you have substantiation. The value of your time volunteered to a charity, however, is NOT deductible. The mileage on your vehicle for driving to volunteer IS deductible at the rate of $0.14 a mile. Be sure to keep a record of the mileage, including the date and purpose of each charitable trip.
These tips are brought to you by Schutte & Hilgendorf, PLLC, CPA’s, a Prescott firm serving the greater Yavapai County, providing audit, accounting, bookkeeping, tax preparaton and planning, Quickbooks accounting and setup, to individuals and small businesses. Contact us for a free consultation at (928) 778-0079.
