IRS
offers tips for year-end donations
Individuals and businesses making contributions to charity
should keep in mind several important tax law provisions
that have taken effect in recent years.
Some
of these changes include the following:
Special
Charitable Contributions for Certain IRA Owners
This
provision, currently scheduled to expire at the end of 2009,
offers older owners of individual retirement accounts (IRAs)
a different way to give to charity. An IRA owner, age 70½
or over, can directly transfer tax-free up to $100,000 per
year to an eligible charity. This option, created in 2006,
is available for distributions from IRAs, regardless of
whether the owners itemize their deductions. Distributions
from employer-sponsored retirement plans, including SIMPLE
IRAs and simplified employee pension (SEP) plans, are not
eligible.
To
qualify, the funds must be contributed directly by the IRA
trustee to the eligible charity. Amounts so transferred
are not taxable and no deduction is available for the transfer.
Not
all charities are eligible. For example, donor-advised funds
and supporting organizations are not eligible recipients.
Amounts
transferred to a charity from an IRA are counted in determining
whether the owner has met the IRA's required minimum distribution.
Where individuals have made nondeductible contributions
to their traditional IRAs, a special rule treats transferred
amounts as coming first from taxable funds, instead of proportionately
from taxable and nontaxable funds, as would be the case
with regular distributions. See Publication 590, Individual
Retirement Arrangements (IRAs), for more information on
qualified charitable distributions.
Rules
for Clothing and Household Items
To
be deductible, clothing and household items donated to charity
generally must be in good used condition or better. A clothing
or household item for which a taxpayer claims a deduction
of over $500 does not have to meet this standard if the
taxpayer includes a qualified appraisal of the item with
the return. Household items include furniture, furnishings,
electronics, appliances and linens.
Guidelines
for Monetary Donations
To
deduct any charitable donation of money, regardless of amount,
a taxpayer must have a bank record or a written communication
from the charity showing the name of the charity and the
date and amount of the contribution. Bank records include
canceled checks, bank or credit union statements, and credit
card statements. Bank or credit union statements should
show the name of the charity, the date, and the amount paid.
Credit card statements should show the name of the charity,
the date, and the transaction posting date.
Donations
of money include those made in cash or by check, electronic
funds transfer, credit card and payroll deduction. For payroll
deductions, the taxpayer should retain a pay stub, a Form
W-2 wage statement or other document furnished by the employer
showing the total amount withheld for charity, along with
the pledge card showing the name of the charity.
These
requirements for the deduction of monetary donations do
not change the long-standing requirement that a taxpayer
obtain an acknowledgment from a charity for each deductible
donation (either money or property) of $250 or more. However,
one statement containing all of the required information
may meet both requirements.
Reminders
To
help taxpayers plan their holiday-season and year-end giving,
the IRS offers the following additional reminders:
Contributions
are deductible in the year made. Thus, donations charged
to a credit card before the end of 2009 count for 2009.
This is true even if the credit card bill isn't paid until
2010. Also, checks count for 2009 as long as they are mailed
in 2009 and clear, shortly thereafter.
Check that the organization is qualified. Only donations
to qualified organizations are tax-deductible. IRS Publication
78, available online and at many public libraries, lists
most organizations that are qualified to receive deductible
contributions. The searchable online version can be found
at IRS.gov under Search for Charities. In addition, churches,
synagogues, temples, mosques and government agencies are
eligible to receive deductible donations, even if they are
not listed in Publication 78.
For individuals, only taxpayers who itemize their deductions
on Form 1040 Schedule A can claim deductions for charitable
contributions. This deduction is not available to individuals
who choose the standard deduction, including anyone who
files a short form (Form 1040A or 1040EZ). A taxpayer will
have a tax savings only if the total itemized deductions
(mortgage interest, charitable contributions, state and
local taxes, etc.) exceed the standard deduction. Use the
2009 Form 1040 Schedule A, available now on IRS.gov, to
determine whether itemizing is better than claiming the
standard deduction.
For all donations of property, including clothing and household
items, get from the charity, if possible, a receipt that
includes the name of the charity, date of the contribution,
and a reasonably-detailed description of the donated property.
If a donation is left at a charity's unattended drop site,
keep a written record of the donation that includes this
information, as well as the fair market value of the property
at the time of the donation and the method used to determine
that value. Additional rules apply for a contribution of
$250 or more.
The deduction for a motor vehicle, boat or airplane donated
to charity is usually limited to the gross proceeds from
its sale. This rule applies if the claimed value is more
than $500. Form 1098-C, or a similar statement, must be
provided to the donor by the organization and attached to
the donor's tax return.
If the amount of a taxpayer's deduction for all noncash
contributions is over $500, a properly-completed Form 8283
must be submitted with the tax return.
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