Time is Running Out for these Tax Deductions
At this time of year, tax planning might be the last thing on your mind but if you are feeling a touch of the generous holiday spirit, and if you plan correctly, charitable donations can often be used as valuable tax deductions! Giving feels good and can also earn you a break on your taxes, but before writing any checks, make sure you’re following these guidelines.
Check out the organization. In order to claim your gift as a deduction on your tax return, the recipient must be a charity that is qualified by the IRS. Check IRS Publication 526 for more details. You also want to make certain that the group is legitimate, since scam charities are quite common at this time of year. Resist the urge to pull out your credit card over the phone, and take the time to research a charity first. Some con artists can be quite convincing.
Keep records. If your return is ever audited, you will lose the deduction for any charitable donations that you cannot prove. So keep those receipts! If you donate by credit or debit card, your statements will suffice to prove your claim.
Claim non-cash donations correctly. Household goods and clothing must be in good used condition, and you can only claim their depreciated values (not the price you originally paid for the items). If you donate stock, you can only deduct its current fair market value. If your non-cash contributions amount to more than $500, file IRS Form 8283 with your return. If an item is worth more than $5,000, you must attach a qualified appraisal as proof.
If you receive anything in return for a donation – for example, you win an item at a charity auction – then you can only claim the difference between your donation and the value of the item. For example, if you bid $1,000 on an item worth $200, then you can claim a deduction of $800.
Make your donations by December 31. In order to count donations toward your 2016 tax return, the gifts must actually be made during 2016.
As always, check with your tax professional if you have any questions about the income tax deduction for charitable donations. And if you have any other financial planning questions, give us a call. We’ll be happy to help.