When completing your 1040, the more tax deductions means the larger your refund, correct? There are very few deductions that you have the ability to control whether you qualify, Donating to charity is one deduction that is completely up to you. After all, those who give gain more than those who only receive.
If you believe that you qualify for the charitable donation deduction this tax season, there are few things that you should verify before trying to claim it on your 1040. Review the 7 guidelines below to see if you are eligible.
- The organization. Make sure the organization that you donate to is a qualifying organization. Donating to either a political party or individual is not an accepted charity in the IRS’s eyes.
- The dotted line. To qualify for the deduction, you must first fill out a 1040 and, in addition to your 1040, you must list gifts and monetary donations made to charities on a Schedule A.
- If you were earlier rewarded. The IRS states: “If you receive a benefit because of your contribution then you can deduct only the amount that exceeds the fair market value of the benefit received.” [1] This essentially means that if you donated to a charity and received a reward, for example movie tickets, then you can only receive a deduction that is greater than the cost of the movie tickets. If it is less than or equal to, you do not receive a deduction.
- Donated items. Noncash items are regarded at “fair market value” which means the amount that the item would be sold between a buyer and a seller is the value in the eyes of the IRS. Clothing donations as an exception must be in good condition for them to be considered as usable for a deduction.
- Donated money. If you want to include monetary donations on your Schedule A then you must have some record of the transaction. This could be a written verification from the organization that contains the name of the organization, the date of the contribution and amount of the contribution. Bank record, or a notable payroll deduction would also suffice.
- Donations over $250. For contributions equal to, or over $250, besides the already required records of the transaction, you will also need to submit proof of whether the organization provided any goods or services in exchange for the gift.
- Donations of items worth over $500. If you submitted a donation of items worth more than $500 dollars in market value you will need to submit an additional form to the IRS FORM 8283, or also known as Noncash Charitable Contributions.
Recording any charitable contributions on your tax return can be a lengthy process. Be sure to go through your 1040 form thoroughly and completely to avoid getting flagged by the IRS or getting your form returned.
Happy tax season from Central Bank!
Source:
[1] Eight Tips for Deducting Charitable Contributions, IRS.gov
Please consult your tax advisor for guidance on your particular situation.
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