Tax Tips for Gifts to Charityby ModernMom Staff
Although you donate gifts to a charity as an act of kindness, your charitable generosity may give you some much needed tax relief.
Each time you make a donation, regardless if it is monetary, a service rendered or material items, make sure you obtain some type of record for your donation. When it comes time to file your tax return, pull out those records for the gifts you gave to charity throughout the year, and you could possibly decrease the amount of taxes you owe.
If you are making a monetary donation to charity, you need to make it as large as possible; the larger the sum of money, the better the tax deduction. For example, if you plan to set up a scholarship for your alma-mater, decide on the annual scholarship amount, and pay a lump-sum instead of making the donation yearly. So if you start a scholarship for two thousand dollars annually, it would be beneficial to pay the scholarship pledge up for at least two years or more. Therefore if you donated four thousand dollars to the scholarship fund, the school would spread that amount out over the next two years. If you decide that you want to oversee the scholarship yourself, you have the option to set up a charitable gift fund. This allows you to donate the money to your fund, and spread the scholarship out over time, at your own discretion.
Proof of Donations
You cannot claim a tax deduction if you do not have proof of the donation itself, so you will need to keep a record of your charitable gifts. Records can vary, depending on the type of donation you have made. If you own a business, you may have elected to donate your company’s service or time. In this instance, you will need to invoice the charity, but note that the services were paid for by your company as a gift. For monetary gifts, it is best to write a check or purchase a money order from your bank. These bank records are kept on file and available anytime from your financial institution. When you purchase gifts, such as clothing, toys or food, keep the receipt of the purchase in a secure place.
You will need an appraisal for a donated item that is valued at more than five thousand dollars. There are some exceptions to a tax gift valued over five thousand dollars. Clothing and household items will need an appraisal if they are valued at more than five hundred dollars each. Non-publicly traded stock, intellectual properties and a vehicle may exceed five thousand dollars. If your business donates services that are considered qualified contributions - care of infants, the needy or the ill - then those deductions can exceed five thousand dollars. A qualified appraiser is someone that follows the principles of the Uniform Standards of Professional Appraisal Practice.
Rules and Regulations
Donating gifts for charity does come with a set of rules and regulations that you must follow. If you donate to a charity, but receive a gift in return, you must deduct the fair market value price of the gift you received before you can claim a reduction. For example, if you donate two thousand dollars to an organization, and the organization gives you a television in return, you must deduct the price of the television from your monetary donation. Your donation must be given to a qualified organization. Donating money or gifts to your family is not considered charity, unless the individual is registered with a qualified organization. The Internal Revenue Service has a list of standards that a qualified group must meet. The IRS Publication 78 has a list of all qualified organizations.