Am I able to write off my donation?
This is a common question that generally is not asked until it's too late. Many dollars have been lost because the necessary financial records required to qualify for such tax saving actions were not maintained and/or proper documentation was not provided at the time of donation. To help you avoid losing out on these tax benefits, we have outlined some tips to help you capitalize on such a common, but often misunderstood tax shelter that makes a difference come tax time.
1. Give to the right organization
The first step to ensuring that you get a tax write-off for your charitable donation is to make sure you give to a qualified organization. The most common organizations that are qualified to receive deductible contributions are: religious, charitable, educational, scientific or literary. If you are not sure of the type of the organization you are giving to, the IRS provides a list of organizations that qualify, click here to find out or work with your tax advisor for assistance.
2. Choose the right gift
You can give a gift of money or property (furniture, household appliances, electronics, etc.) to a qualified organization. However, your gift cannot be given with restrictions on how the organization must use it nor can you request that it be set aside for the use by someone in particular. Gifts of property must be in good condition. Furthermore, there are special rules for how to deduct a gift of a vehicle, click here for more details. Be sure to ask your CPA if the type of gift you are giving will allow you to deduct it on your tax return.
3. Keep a record of your donations
In order for your donation to be tax deductible you must have proof of your gift. Make sure you receive a letter or statement from the organization for any gift you give worth $250 or more. If you give a monetary gift, you must have a bank record or a written statement, regardless of the amount, in order for your gift to be deductible. Click here for details of what must be included on this written statement. Make sure you keep your documentation in a safe place. AEMC suggests that you even keep an electronic copy of your statements and backup your files. In most cases the IRS has up to 3 years to audit your tax return and charitable contributions are considered to be a high audit area, so keeping records will help you maintiain any tax benefit you may have received on from your gift donation.
4. Know the limitations
Generally, you cannot give more than 50% of your Adjusted Gross Income (AGI) for tax benefit. In some cases your gift could be limited to 20 - 30%. Only taxpayers who itemize their deductions are able to claim a charitable contribution, and even if you do itemize, you may be faced with additional limitations based on your income. You should consult with your tax advisor to determine the steps you should take to maximize any tax savings from your charitable gift.
These tips will help to ensure that your gift giving ultimately helps you lower your tax liability. At AEMC, we want our clients to give the least amount of their hard earned dollars to Uncle Sam. When giving with the intention of receiving a tax deduction, make sure to check the status of the organization you are giving to; give a qualified gift and be aware of any limitations that may prevent you from receiving the tax savings you are expecting.
Get the idea? Remember, the key to maintaining your charitable deductions is to document your donations well. Get a jumpstart in documenting your donations for the 2016 tax year.
