FINDING END OF YEAR TAX SAVINGS: CHARITABLE CONTRIBUTIONS
12/11/2015
Nora Tellifson, CPA
By the time mid-December rolls around, there are limited moves you can make to reduce your 2015 tax bill. However, you can still impact your tax bill with charitable contributions all the way up until December 31, 2015 if you itemize your deductions. This includes cash contributions as well as non cash contributions, which dollar for dollar, are just as valuable as cash contributions. Consider a taxpayer in the 25% tax bracket. A cash contribution of $200 and a noncash contribution of $200 amounts to a $100 tax savings ($200+$200=$400, $400x25%=$100). In the 33% tax bracket, that’s a $132 savings, and in the 38% bracket, a $152 savings. Remember that itemized deductions are limited for individuals with adjusted gross income over $258,250 (married filing joint filers $309,900). So if you fall into that category, the additional itemized deductions will not help you. Record keeping requirements for cash and noncash contributions can be a little confusing so let’s review them.
Cash contributions can be made by check, cash, or credit card. As long as the credit card charge is made in 2015, the contribution will count for 2015 for all cash basis taxpayers. For an amount under $250, a cancelled check, bank statement, or credit card statement is sufficient. If the donation was made in cash, the taxpayer needs written acknowledgement from the organization. For this reason, it’s usually preferable to make the donation by check or credit card rather than in cash. Unfortunately, when cash is donated to the red kettle and no receipt is given, it is not a deductible contribution for purposes of your tax return. However, just because the IRS won’t give you credit for it, doesn’t mean you shouldn’t do it if you are moved to do so, and you will likely get credit for it in the afterlife!
For cash contributions of $250 and more to any one charitable organization, a written statement from the organization must be obtained. There are certain elements that must be present on the statement including the amount received and whether the organization provided any goods or services for the donation, and if so, the fair market value of those goods and services. An exception to this is payroll deductions made by an employee. In that case, the W-2 or other employer documentation showing the deductions is sufficient.
I would also remind you that there are some organizations that people frequently give cash to and mistake for charitable organizations. Donations to political organizations or candidates are not charitable deductions, no matter how much it might feel like one! Contributions to crowdfunding sites, including most GoFundMe donations, are not deductible contributions. Some crowdfunding sites also have certified charitable campaigns and a receipt would include that information, but make sure it’s a bona fide charitable organization if your intent is to deduct the contribution.
In general, noncash donations of clothing or household items are valued at their fair value or what the donee organization can sell them for. They are not valued at what you paid for them, and they should be in “good used condition or better” according the IRS. If your total noncash contributions are $500 or more, you will need to include Form 8283 with your tax return. If the individual donation is less than $250, a written record including the name and address of the donee organization, date and location of the contribution, and description of the property along with a receipt from the organization is sufficient. Commonly, the organization will provide a receipt with a date and signature that includes a place for you to fill out the remaining information and assign a value to your donation. A receipt is not required if it is impractical to obtain one (e.g., leaving the donation at a drop box). However, you do still need to keep a written record with the required information. As a tax advisor, I recommend using organizations that can provide you with a receipt for your records.
For noncash donations $250-$500 in fair value, in addition to the requirements above, you must also obtain an acknowledgement from the organization that includes a description of the items received, a statement regarding whether any goods or services were provided in exchange for the donation, and an estimate of the fair value. For amounts $501-$5,000, in addition to the preceding requirements, the taxpayer must also include date of purchase and original cost on Form 8283. Finally, for contributions greater than $5,000, an appraisal needs to be included with Form 8283.
There are additional requirements pertaining to donations of cars, boats, planes, artwork, and publicly traded stock. In prior years, it has also been possible to contribute directly from your IRA to a charitable organization if you have a required minimum distribution. That provision has not been renewed yet by Congress for the 2015 tax year, but there is a strong chance it will be renewed again as it has in the past. For all of these situations and other unique circumstances, you should contact your tax advisor for specific guidance. If you don’t have a tax advisor and have questions, please contact us at Mason + Rich, P.A. We are always happy to answer your questions!
Nora Tellifson, CPA
By the time mid-December rolls around, there are limited moves you can make to reduce your 2015 tax bill. However, you can still impact your tax bill with charitable contributions all the way up until December 31, 2015 if you itemize your deductions. This includes cash contributions as well as non cash contributions, which dollar for dollar, are just as valuable as cash contributions. Consider a taxpayer in the 25% tax bracket. A cash contribution of $200 and a noncash contribution of $200 amounts to a $100 tax savings ($200+$200=$400, $400x25%=$100). In the 33% tax bracket, that’s a $132 savings, and in the 38% bracket, a $152 savings. Remember that itemized deductions are limited for individuals with adjusted gross income over $258,250 (married filing joint filers $309,900). So if you fall into that category, the additional itemized deductions will not help you. Record keeping requirements for cash and noncash contributions can be a little confusing so let’s review them.
Cash contributions can be made by check, cash, or credit card. As long as the credit card charge is made in 2015, the contribution will count for 2015 for all cash basis taxpayers. For an amount under $250, a cancelled check, bank statement, or credit card statement is sufficient. If the donation was made in cash, the taxpayer needs written acknowledgement from the organization. For this reason, it’s usually preferable to make the donation by check or credit card rather than in cash. Unfortunately, when cash is donated to the red kettle and no receipt is given, it is not a deductible contribution for purposes of your tax return. However, just because the IRS won’t give you credit for it, doesn’t mean you shouldn’t do it if you are moved to do so, and you will likely get credit for it in the afterlife!
For cash contributions of $250 and more to any one charitable organization, a written statement from the organization must be obtained. There are certain elements that must be present on the statement including the amount received and whether the organization provided any goods or services for the donation, and if so, the fair market value of those goods and services. An exception to this is payroll deductions made by an employee. In that case, the W-2 or other employer documentation showing the deductions is sufficient.
I would also remind you that there are some organizations that people frequently give cash to and mistake for charitable organizations. Donations to political organizations or candidates are not charitable deductions, no matter how much it might feel like one! Contributions to crowdfunding sites, including most GoFundMe donations, are not deductible contributions. Some crowdfunding sites also have certified charitable campaigns and a receipt would include that information, but make sure it’s a bona fide charitable organization if your intent is to deduct the contribution.
In general, noncash donations of clothing or household items are valued at their fair value or what the donee organization can sell them for. They are not valued at what you paid for them, and they should be in “good used condition or better” according the IRS. If your total noncash contributions are $500 or more, you will need to include Form 8283 with your tax return. If the individual donation is less than $250, a written record including the name and address of the donee organization, date and location of the contribution, and description of the property along with a receipt from the organization is sufficient. Commonly, the organization will provide a receipt with a date and signature that includes a place for you to fill out the remaining information and assign a value to your donation. A receipt is not required if it is impractical to obtain one (e.g., leaving the donation at a drop box). However, you do still need to keep a written record with the required information. As a tax advisor, I recommend using organizations that can provide you with a receipt for your records.
For noncash donations $250-$500 in fair value, in addition to the requirements above, you must also obtain an acknowledgement from the organization that includes a description of the items received, a statement regarding whether any goods or services were provided in exchange for the donation, and an estimate of the fair value. For amounts $501-$5,000, in addition to the preceding requirements, the taxpayer must also include date of purchase and original cost on Form 8283. Finally, for contributions greater than $5,000, an appraisal needs to be included with Form 8283.
There are additional requirements pertaining to donations of cars, boats, planes, artwork, and publicly traded stock. In prior years, it has also been possible to contribute directly from your IRA to a charitable organization if you have a required minimum distribution. That provision has not been renewed yet by Congress for the 2015 tax year, but there is a strong chance it will be renewed again as it has in the past. For all of these situations and other unique circumstances, you should contact your tax advisor for specific guidance. If you don’t have a tax advisor and have questions, please contact us at Mason + Rich, P.A. We are always happy to answer your questions!
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