Other Free Encyclopedias » Online Encyclopedia » Encyclopedia - Featured Articles » Featured Articles: Lake Havasu Homes For Sale - Searching for Lake Havasu Homes for Sale - Homes for Less than $100,000 to Cell Phone Compare - The Great Smart Cell Phone Compare - Droid

Tax Deduction Donation - How Tax Deductions for Donations Work

items irs deductible return

Let us face it; no one wants to pay more tax. We all strive to pay less tax. It is evident in the commercials for tax preparation franchises; they all promise to find every deduction to which the taxpayer is entitled. One such deduction for your federal tax return only is to donate money or items to a charitable organization. Sounds simple enough, but exactly how does it work?

The most crucial piece of information you need up front is that donations are only a valid tax deduction if you itemize your deductions as opposed to using the standard deduction. Itemized deductions are reported on Schedule A, a form used in addition to your standard federal tax return. Other items on this schedule are mortgage interest, real estate taxes, and medical expenses, to name a few. If these expenses for you for the year do not add up to more than the IRS standard deduction for your filing status, then you will not benefit from itemizing and therefore can not take a tax deduction for donations.

Moving forward we will assume the taxpayer is itemizing and can benefit from a tax deduction for donating. There are some important pieces of information the taxpayer should know. First of all, the total from Schedule A, which will include donated monies, reduces taxable income, not tax due. Second, the money or items donated must be given to a charitable organization. This means they must have tax exempt status with the US government and the Internal Revenue Service. Most organizations make this clear at the beginning of a transaction, but be sure to ask if they do not.

This brings us to the next, very crucial part of any tax deduction – record keeping. Most legitimate charitable organizations will provide you with a receipt for your tax deductible donation, and this is good, because receipts are required by the IRS. If you are audited and you have no receipt for your tax deductible donation, you will lose it and owe the tax, plus possibly penalties and interest. In addition, if you report on your tax return that you made cash donations in excess of $250, you must provide documentation supporting your claim. If you report more than $500 in non-cash contributions, you must attach form 8283 to your return substantiating your donations, including how the value of the items was determined. The most common non-cash donations are clothing and other household items, but larger items such as cars may also be donated. Sometimes the recipient will value the items for you, but more often they will not. There are computer programs, such as It’s Deductible, that will help you determine the value of your donated items and the IRS accepts their calculations.

As with most items on a tax return, the benefits of tax deductions for donations can be limited by IRS rules. Your itemized deduction total can be limited if you have high income by IRS standards. Your individual donations are limited to 50% of your adjusted gross income for cash and 30% of your AGI for non-cash, regardless of the level of income. Your AGI is the figure on line 37 of Form 1040. Forms 1040A and 1040EZ may not be used when itemizing deductions.

For more information you can review IRS Publication 526 – Charitable Contributions. You can also review line by line instructions for the Schedule A itself. Pub 526 gives an extensive list of what is deductible and what is not. For instance, the value of your time and services is not tax deductible as a donation. So if you are a plumber and you fix your church’s leaky sink, although very generous of you, you may not deduct your standard fee as a donation. The beauty of a tax deduction for donations is twofold. First you get to give back to your community, and then you get to pay less federal tax as well.

Tax Professional Software [next] [back] Tax Accounting Jobs - How to Obtain One of the Tax Accounting Jobs

User Comments

Your email address will be altered so spam harvesting bots can't read it easily.
Hide my email completely instead?

Cancel or