Any taxpayer that donates to a qualified charity can reduce his or her tax bill. Regardless of the amount or the number of items donated, deductions for charitable contributions can be claimed to save more in taxes. Some taxpayers wait until the end of the year to make charitable contributions to maximize their tax savings through tax adjustments.
In order to comply with IRS guidelines concerning charitable contributions, consider the following rules and limitations:
You can only claim a deduction on a contribution if you donate to a qualified charity. A qualified charity is one that has obtained tax-exempt status. Religious organizations such as the church, synagogue and temple are considered qualified charities even without a 501(c)(3) tax-exempt status.
Generally, you can deduct cash contributions of up to 50% of your adjusted gross income (AGI). For contributions made in the form of property, you can deduct up to 30% of your AGI. For contributions of appreciated capital gains, you can deduct up to 20% of your AGI. Contributions made in excess of this limit can be carried over to the next year, up to a maximum of five years.
Direct Contribution from an IRA
If you are 70 ½ or older, you can directly transfer money from your IRA to a charitable organization. Such a transfer can help retired taxpayers meet the required minimum distribution (RMD) threshold. However, direct contributions from an IRA are not tax deductible.
Giving Used Household Goods
You can claim a deduction when you donate used household goods, but only if they are in good condition. You can calculate the fair market value of the donated goods and deduct it on your return.
If you donate noncash items, you may need to consider the following:
- If you donate noncash items worth more than $500, the IRS requires you to file Form 8283, Noncash Charitable Contributions with your tax return.
- If you claim a deduction for a noncash contribution worth $5,000 or less, you need to fill out Form 8283, Section A.
- If you claim a deduction for a noncash contribution of more than $5,000, you need a qualified appraisal of the noncash property and fill out Form 8283, Section B.
It is important to maintain proper records for your charitable contributions. An IRS audit means producing receipts and supporting documentation for all deductions claimed in a year. For charitable contributions made in cash, check or other monetary gifts, you are required to obtain a bank record or a written communication from the qualified charity. The record should contain the name of the organization, the amount and the date of the contribution.