Know How Charitable Contributions Affect Your Taxes

charitable tax donationsIt’s a good thing to give to charity. Helping those less fortunate or maybe donating to a school to help the band with new equipment is a great way to help out the community and be a good humanitarian. Even small donations, like clothes that you no longer wear, to your local Goodwill store could make a difference in someone’s life.

But, even as selfless as these kind acts may be, there is a personal gain that can be received from such charity. No, we aren’t talking about the swell of good feelings from giving, but rather the tax deductions that you can receive from the IRS for your charitable contributions.

Monetary Gifts

Make sure you receive a valid receipt from the charity you make your donation. All monetary gifts must be accounted for regardless of the amount. You are allowed to deduct 100% of monetary gifts if the expense is paid during the tax year.

Monetary donations can be in the form of:

  • Cash – not preferred, as getting a receipt could be problematic
  • Check
  • Electronic transfer of funds
  • Credit card transactions
  • Payroll deduction

Real Estate

A non cash donation such as appreciated real estate can provide additional benefits. If you’ve held the property for more than one year, you generally will be able to deduct its full fair market value and avoid any capital gains tax you’d owe if you sold the property.

Make sure to acquire an appraisal and complete the Form 8283 for Non Cash Charitable Contributions, with your appraisers signature. File this with your Federal return. Property that exceeds $499,999 may need the appraisal report to accompany the return.

*you could be taxed on capital gains if the property is sold from the charity to anyone you may have originally discussed a potential sale. The IRS may view this as a prearranged sale and look at this as potential fraud.

Donation of Goods

Goods can be a variety of personal household or professional items.

Commonly donated items are:

  • Furniture
  • Electronics
  • Appliances
  • Clothes, towel and linens

Vehicles

Cars, boats and other vehicles may be donated under special provisions. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle. A receipt for the sale is required.

Volunteer Work

Unfortunately donating time and energy is not currently tax deductible. But, it is possible to take the costs paid toward completing volunteer work and deduct those expenses. In order for the expenses to be deductible, they costs must be have been due because of the service. If you purchased any items for personal or family use, then they cannot be itemized. All expenses have to be associated with the volunteer service.

  • Supplies
  • Clothes or uniforms
  • Transportation costs to and from volunteer event

This is a tricky area and should not be casually added to your tax return. Check with an experienced tax accountant to make sure you have met all the criteria for itemized deductions.

Red Flags for the IRS

Charitable donations are commonly used for scamming purposes and thus, the IRS is very careful when reviewing these deductions. This should not scare you from donating or even claiming your donations. Just make sure you follow the rules and don’t exaggerate your charitable donations.

What is a Red Flag?

The IRS has a few specific triggers that set off a “red flag” for returns that look fraudulent.

  1. Based on your income, the IRS can average what the charitable contribution is for someone in your tax bracket. If your income and contribution are disproportionate, you may be due for an audit.
  2. Failing to file Form 8283 for Non Cash Charitable Contributions exceeding donations of $500.
  3. Donating property and claiming the full retail value of the item.
  4. Avoid Red Flags with the IRS for Charitable Contributions

    The best way to avoid problems with the IRS is to eliminate the potential for problems. This means check over your return and itemizations. Keep detailed notes and file all your receipts in secure place. You can be back audited for up to several years, so record keeping is essential.

  • Have items appraised to determine their re-sale value. Only claim the resale value – DO NOT CLAIM full original retail value.
  • Don’t exceed giving donations that exceed your income bracket.
  • Avoid donating one large lump sum to an individual charity or organization.
  • Keep accurate records of your donations. Photo records of donated items are good to have in case of an audit.
  • Get a receipt for all monetary donations. Get a receipt for each deduction (property or monetary) exceeding $250.
  • Make donations to a reputable charity. The IRS has a list of scam charities.
  1. Contact an Experience Raleigh CPA for Support

    Handling these aspects of taxes can be tricky. The tax codes are complicated and any mistakes can create a situation that the IRS may want to investigate. It is in the best interest of filers to hire an independent local CPA to handle their tax preparation. 

    Contact our team by calling 919-420-0092 or completing the contact form. Schedule your consultation with our small business accountants today!