2013 1231 Charitable Contributions – No IRS Wiggle Room

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If you enjoyed playing a game as a child of jumping through hoops, you’ll really enjoy the rules to claim a charitable contribution on your tax return. In this area, unlike others in the tax code, the rules have been etched into law with no wiggle room.

The first thing you should do is verify that the charity is an authorized exempt organization. Go to www.IRS.gov, and type “Pub. 78 data” into the search box.

Cash Contributions

Under $250 (Cash):

Under audit, you need:

• A cancelled check, payroll withholding stub, or a credit card statement, or
• A written receipt or letter from the charity showing its name, address, the date of contribution, as well as the amount.

Over $250 (Cash):

, the charity must give you a receipt, stating:

• The dollar amount
• The value of goods or services you received in exchange

Non-Cash Contributions

If you want to deduct non-cash items as charity, you need to follow these rules. You can deduct the “fair market value” of those items you donate. The fair market value, per the IRS, is the price a “willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell.”

You, not the charity, have to determine the value. One source is the Salvation Army valuation guide.

Under $250 (Non-Cash):

You need a receipt showing:

• The name and address of the charity,

• The date of contribution,

• A

list and description of the items – not just “two bags of clothing.” I suggest taking a photograph of the items, and save it on your computer in your “taxes” file.

I don’t suggest using those clothing ‘drop’ boxes.

Over $250 (Non-Cash):

In addition to the requirements above, the receipt

also state whether you were given any goods or services in exchange for the donation.

If the receipt does have the above requirements, it is no good for tax purposes.

Over $500 (Non-Cash):

If those boxes of clothing, for example, exceed $500, you (or your tax prepare) will have to complete the IRS form 8283, which shows:

• The name and address of the charity,

• The date of contribution,

• The “fair market value” of the items,

• How you determined the value, like the valuation guide on the Salvation Army website noted above

In addition, if any one item is valued at over $500, you have to indicate:

• The date the property was acquired,

• How the property was acquired (purchase, gift, inherited),

• The cost, or basis, of the property

Over $5,000 (Non-Cash):

If the item is valued at over $5,000, you’ll need a written appraisal. (Discuss this with you preparer.)

General Rule:

Whatever you donate – appliances, electronics, books, clothes, household items – make a detailed listing, and a value. For example, four (4) pairs of men’s shoes, good condition, $30; seven (7) skirts, good conditions, $21. Along with the list, take a photo to prove the condition of the items. The law says that the items must be in “good condition.”

New Items for a charity drive are deductible at their cost. Again, save the receipts. Make sure that you are donating to a charity. Giving a coat to a homeless person is not deductible, neither is food or anything else you give to your neighbor whose house burned down. Go through a recognized charity.

Your car deduction is dependent on what the charity does with it.

• If it is sold, your deduction is the amount the charity received.
• If the charity keeps the car for its own use, or makes substantial improvements and then sells it, or sells the car to some “needy” family at a below market value, you deduction is the fair market value of the car.

The charity will provide you the value, if over $500, on an IRS form, 1098-C, or give you a statement within 30 days of what the charity did with the car.

Out Of Pocket Deductions:

• Your time is not deductible
• Use of your car is deductible at either $0.14/mile, or expenses directly related (not repairs, depreciation, registration fees, insurance, or tires) plus parking and tolls
• Supplies you purchase for your volunteer work are deductible
• A uniform you wear and maintain is deductible, as are expenses you incur for attending a convention

Note that contributing through payroll deduction does not exempt you from following these rules.

Remember that the value of the contribution dollar-wise is your tax bracket. So if you are in the 15 percent bracket, a $100 contribution is worth $15 in your pocket. Maybe items are worth more on eBay?

Have a good week.

Quip: A penny saved is a government oversight.

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.