Charitable donations are designed to help lower your tax bill as a qualified organization. Want to exactly know how? As stated by the Internal Revenue Service (IRS), here are some tips to make sure your contributions pay off on your tax returns.
- To enjoy a legitimate tax deduction, then you should donate to a qualified organization. Take note that you cannot deduct contributions made to specific political organizations, candidates and individuals.
- You should file Form 1040 and itemize deductions on Schedule A to deduct a charitable donation.
- If you are entitled to receive a benefit due to a certain type of donation, such as tickets to a ball game, merchandise or other related product or service, remember that you can deduct only the exceeding amount of the fair market value of your received benefit.
- Take note that stock and other non-cash property donations are usually valued at their fair market value. Household items, such as clothing, must generally be in good used condition to be deductible. For vehicles, special rules would apply to them.
- To deduct a contribution of cash, monetary gift or check, it is required to maintain payroll deduction records, bank records or any form of written communication from the qualified organization that contains its name and the amount and date of the contribution. As for text message donations, telephone bills will meet the record-keeping requirements if it shows the specified details above.
- To make a deduction claim for contributions of property or cash equaling to $250 or more you must present the same documents mentioned in the previous tip. But if your total deduction for all non-cash contributions for the year is over $500, you must complete the IRS Form 8283 and attach it to your return.
- If you are donating an item with a value of more than $5,000, you must complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
Keep in mind that fair market value is generally the price at which a property would change hands between the seller and the buyer, with neither having to sell or buy and both having reasonable knowledge of all the involved facts.
There you have it—ways on how to take advantage of charitable donations to your bottom line. For more information about this, you can refer to the Form 8283 provided by the IRS and its instructions, as well as the Publication 526, which is all about charitable donations.