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Tax On Cash Donations, Non-Cash Donations, Charity Expenses



Nanda Kumar, Tax Advisor, Tax Blog, Sterling, Virginia, USA, TaxConnections

A donation in any form can give you immense pleasure and harmony of sharing stuff with others who do not have access to such things. More people are interested in such noble causes than ever before. Apart from helping some people in need, you can help yourself as well. A donation is one of the known ways of reducing your tax liability. Unfortunately, a lot of people started to misuse same and in turn forced the government to push for stricter regulations. The following are some important points that you need to consider when it comes to tax on donations or charity.

  • If you have done some non-cash donations to any organization and the same accounts to less than $250, you need to get a receipt from the organization. Think of it as the donations made to Salvation Army and the receipt that you get in return. You need to keep the receipt with you carefully for your tax returns. But do not file the same in your returns.
  • For any charity that you have done that ranges from $250-$5000, you need to get a comprehensive acknowledgement in written from the organization or charity. IRS has a format that must be followed for the written acknowledgement.
    • It usually includes the description of your donation, not necessarily the value of your donations.
    • If the charity provided any services in return of your donation.
    • If they did provide any services, a description of the same along with a fair value of the services.
    • Date of the donation, which will be helpful during the filing of tax returns.

You also need to produce a written valuation of the donations so that it can be attached with tax records. The evidence is essential for IRS to decide the deductions that you must receive as part of the donation.

  • In the event that your total non-cash donations are more than $500, you would need to fill up the Form 8283 and make it a part of your tax return. The form is specifically designed for non-cash charitable contributions.
  • Should you want to donate items that include furniture or clothing it must be in good condition for you to claim the same in your returns. This can be a bit tricky but getting a valuation and attaching the same can bring down any confusion that persists. For an instance, you might want to donate any relic but their usual condition might not come under good condition criteria. The valuation criteria come into the picture if the donation is more than $500.
  • If you are planning to donate noncash item whose value is more than $5000, the above points hold good. In addition, you would need to furnish an appraisal of the item by someone qualified to do so. However, if you want to wish to donate anything that is traded publicly, then no such appraisals are needed. The appraisal is usually valid on property donation or donation that is beyond a specific value.
  • Tax payers who wish to donate tangibles such as car, boats or places have to deal with additional scrutiny. It is important to understand that the tax write-off will only come into picture once the charity or organization sells such an item. So, the IRS doesn’t really care about any valuations as long as the item stays with the charity.
  • Tax on cash donations largely depends on the tax bracket you qualify for. For example, a $100 donation for someone in 35% bracket would cost them $65 on paper. These values change every year, so it is worth checking the rates before you donate.

Have a question? Contact Nanda Kumar. 

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