Posted by : Daniel Stoica in (Articles, Tax Deductions, Tax Return, Tax Tips) On: August 26th, 2011
Tagged Under : 1040 Form, 8283 Form, accounting professional, charity, Daniel Stoica, deductions, disasters, donations, earthquake, flood, hurricane, IRS, itemize, pledges, tax professional, tornadoes
When natural events such as earthquakes, hurricanes, tornadoes and floods strike and turn into disasters, many of us open up our hearts and wallets and donate to those affected. Here are some tax tips for when you make those charitable donations.
1. Make sure the organization qualifies: In order to take the deduction, all donations must be made to qualifying charitable organizations. You can either ask the charity if they are on the IRS’s list or look at the IRS’s Publication 78, Cumulative List of Organizations at www.irs.gov.
2. You must itemize: You may only take the deduction if your charitable donation is itemized on your 1040 Form, Schedule A.
3. What you can deduct: Most of the time you can deduct cash donations and the market value of your donated property. As a rule, you can only donate clothing, household items, cars, or boats.
4. When you receive something in return: If you donate to a qualifying charity and receive merchandise, other goods or services, you may only deduct the exceeding amount of the market value of the benefit your received.
5. Record-keeping: You must keep accurate records of all contributions you make throughout the year, no matter how large or small. If you donate cash, you must keep any cancelled check, credit card statements, payroll deductions, and the written statement from the charity that includes the date and amount of the donation, plus the charity’s name.
6. Pledges and payments: You can only deduct pledges and payments that are made during the filing year. If you pledge $500 in September and only paid $200 by December 31st, you can only deduct the $200 you paid.
7. Donations made near the end of the year: You must include any credit card charges and check payments for the year you donate cash to a qualifying charity, even if you don’t pay the credit card bill or don’t debit your bank account until the following year.
8. Large donations: If you donate $250 or more, you will need a written statement from the charity. It must show the amount you donated and if the organization provided any goods or services to you for donating to them. The statement must also include a description of any non-cash items you donated and its estimated value. If you donate anything over $500, you will have to fill out an 8283 Form, Non-Cash Charitable Contributions and send it with your tax return. If you are going to claim a deduction for property that is worth more than $5,000, you will have to get the item appraised and fill out Section B on the 8283 Form and send it with your tax return.
9. Tax Exemption Revoked: About 275,000 organizations lost their tax-exempt statuses because they didn’t file their annual reports for the past 3 years, which they are required by law to do. Any donations that were made before the organization’s tax-exempt status was revoked will still qualify for a deduction. However, any organizations that are on automatic revocation that didn’t get reinstated can no longer take tax deductible donations.
To find out which organizations are on the revoked list, visit irs.gov. If you need general information about donations, you can look at IRS Publication 526, Charitable Contributions. For the value of donated property, you can look at IRS Publication 561, Determining the Value of Donated Property. You can find these publications at irs.gov or by calling 800-829-3676.