If you itemize deductions on your tax return, you may be able to include any charitable contributions made during that filing year. Itemizing donations entitles taxpayers to charitable contribution deductions.
Qualifying organizations, typically 501(c)(3), serve the public, providing a valuable service to the community and do not operate for profit. In general, these organizations are either charitable, religious, educational, scientific or literary. Other types include governments organizations, nonprofit schools and hospitals, war veterans’ groups, and nonprofit organizations such as Goodwill or The Salvation Army. Qualified organizations can be found at the IRS’s Tax Exempt Organization Search Tool.
Charitable donations are generally limited to 60% of a taxpayer’s adjusted gross income, meaning you can deduct contributions that don’t exceed 60% of your AGI. Any contributions made over the limit can be carried over to the next tax year. Additional limits on deductions can be found in the IRS’s Charitable Contributions Publication.
Non-cash contributions can include furniture, clothing, appliances, artwork and any item other than a cash payment. Contributions are separated into categories of (1) less than $250, (2) at least $250 but not more than $500, (3) over $500 but not more than $5,000 and (4) over $5,000.
Out-of-pocket expenses, also known as Giving Services, can be deducted if a service is given to a qualified organization and have out-of-pocket expenses of $250 or more. The expenses must be unreimbursed and directly connected with the service. Records of expenses must be recorded for deduction eligibility.
How to record charitable contributions
Donations are itemized on Schedule A of Form 1040 if the taxpayer is not choosing the standard deduction. Any contribution worth more than $250 will require a letter of acknowledgement from the organization. Non-cash donations worth more than $500 will be documented on Form 8283, and an appraisal must be attached if an item is worth more than $5,000.
Non-cash charitable contributions must have a statement from the qualified organization showing certain acknowledgement according to deduction amount. Acknowledgement requirements are dependent on the value of the donation and are laid out in the Charitable Contributions Publication.
Speak with an accountant at Henson & Murtha to find out if itemizing charitable contributions is right for you.