One of the ways that the tax code is designed to influence the behavior of taxpayers is through the combination of tax-exemptions for certain organizations and the tax deduction for donations made to those organizations. If you give donations to tax exempt organizations, here are some tax-time tips for taking a deduction for those donations.
First, the deduction is only available if you itemize your deductions on Schedule A of the form 1040. If you take the standard deduction, then your donations are presumably covered by the standard deduction.
Second, the amount that you can deduct for your charitable donations is limited to a certain percentage of your adjusted gross income. For most contributions, your limit is 50% of your adjusted gross income. However, there are some circumstances where your limit will be reduced to either 30% of your income or 20% of your income. Most organizations that you might consider donating to are “50% organizations,” which means that your donations to them are deductible up to 50% of your AGI. The organization will be able to tell you whether they are a 50% organization, or you can check with the IRS. If the 50% limit prevents you from deducting the contribution, you can carry over the deduction to a future year, but it will still be subject to that year’s 50% limit.
Third, there is a limit to what you can donate. Cash is always allowed, and so are “used household items in good condition.” Vehicles, boats, and planes can be donated as well, but the record keeping requirements are different. You can also deduct out of pocket expenses that you incur solely for the purpose of making contributions to the organization, as long as the organization does not reimburse you for them. You can also deduct $0.14 per mile that you drive for charitable donations, and the costs of overnight travel away from your home if the purpose of your travel was to donate your time for the organization. You cannot deduct the value of your time or services if you volunteer for a tax-exempt organization.
The value of the deduction is based on the fair market value of the item that you give. Cash is always valued at the face value of the cash. Used items are valued at the price that the item would be worth if you bought it in its current condition. You cannot deduct the amount that you paid for an item in its original condition, or the cost of buying a replacement item.
Finally, you must comply with IRS record keeping requirements. What you must keep for records depends on what you are donating and how much the donation was. Cash contributions always require written proof. For donations of items under $250, a simply receipt is adequate. For donations of items over $250 and less than $500, the organization must send you an acknowledgement. For items over $500 and less than $5000, you also have to explain to the IRS when you got the item and how much you paid for it, among other details. For donations of items over $5,000, you must get the item appraised. For deducting out of pocket expenses, you need to detail what you are claiming and the organization needs to verify that it did not reimburse you for the expenses. For travel expenses, you must make normal “reliable” records (around the time that you traveled).