Which Charitable Gifts Qualify for a Deduction?
March 1, 2007
Increasingly concerned about taxpayers overvaluing their donations, congress passed tighter regulations for charitable deductions in the Pension Protection Act of 2006. The new tax rules impact both monetary and noncash contributions. The most restrictive new rule prevents taxpayers from deducting the spare change dropped in a charity's collection bucket without a receipt from the charity.
We offer the following tips to help you better understand the tougher, new rules and thus maximize your charitable deductions.
- Looking Ahead- Document All Gifts, Even Cash
Starting in 2007, the IRS requires written documentation to substantiate deductions for all monetary donations - including cash. In case of an audit, you must have a canceled check, credit card statement or a written acknowledgement from the charity (showing the charity's name, the date of the donation and the amount given). Donating online at Charity Navigator (through our partnership with Network for Good) helps you fulfill this requirement since all your giving records will be stored in one place enabling you to quickly obtain an annual record of your charitable giving for tax preparation.
- Donate IRA Savings to Reduce Taxable Income
In 2006 and 2007, taxpayers who are at least 70 ½ can directly contribute up to $100,000 from a traditional or Roth IRA to a public charity without having to count the gift as taxable income. Since you are not actually claiming a deduction for gifts made from an IRA, you do not have to itemize to take advantage of this tax break.
- No Deduction for Junk Donations
If you donate personal possessions -- a couch, refrigerator, clothes or the like -- to a bona fide charity, you can take a tax deduction for the property's fair market value. To protect yourself in case you are eventually audited, ask for an itemized receipt for the items regardless of whether they are worth $25 or $250. Keep in mind that as of August 17, 2006 the IRS only permits deductions for donations of clothing and household items that are in "good used condition or better." Taxpayers can claim a deduction for any single item worth more than $500, regardless of its condition, so long as a qualified appraisal is submitted with the tax return.
- Previous Tax Rules Still Apply
- Must Itemize: You must itemize in order to take a charita
- Must Give to a Qualified Charitable Organization: All of the organizations rated by Charity Navigator are 501(c) (3) public charities to which all donations are tax deductible.
- Volunteering: There is no deduction for the time you volunteer but, out-of-pocket expenses incurred while volunteering are deductible.
- Must Itemize: You must itemize in order to take a charita
More information on maximizing the tax benefits of your charitable pursuits is available in the Tips & Resources portion of our site.
