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CPASpeak: Charitable Giving

By DALIA CANTOR

As the holidays approach we are accustomed to making charitable contributions and usually don't even think twice about it. After back-to-back storms pummeled Texas, Florida and Puerto Rico, many people are giving even more in 2017 than before. It is time to reap the tax benefits of those charities. Tax rates being at the all-time high, deductions become even more valuable than ever.

You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions. Generally, you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases.

If you are contributing gently worn coats or jackets and other clothing your kids outgrew, you can only deduct the thrift shop or fair market value, which is less than retail. Other noncash donations can work as well, like cleaning out your closets and donating old clothing, books, toys, furniture and kitchen goods. All count toward your charitable contribution, as far as Uncle Sam is concerned. In order to get the deduction come next April, keep a receipt of the donation, a note of the organization's name, and the date and fair market value of all noncash goods.

Out-of-pocket expenses, like driving, could also qualify if you volunteer for a charitable organization, like Meals on Wheels, or travel to a soup kitchen. In that case, you must keep a log when you are providing services for a charity or nonprofit so you can deduct charitable mileage at the federal rate of 14 cents per mile.

High-income earners often benefit from giving stocks or other assets that have grown in value and this way avoiding capital gains tax on investments. If you have stocks that have lost value, by donating them you get a full deduction of the fair market value versus $3,000 capital loss deduction limitation if you were to sell them.

You cannot deduct contributions made to specific individuals, political organizations and candidates.

Below are charitable giving tips published by the Internal Revenue Service:

  • To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
  • If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
  • Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.
  • Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
  • Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
  • To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
  • Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

Dalia Cantor, CPA, has been practicing as an accountant and tax advisor since 1997. She is a Certified Public Accountant in the states of Florida and New York, and graduated Dowling College with a Bachelor's Degree in Accounting. Dalia is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants. Prior to establishing her own practice, Dalia worked in public accounting managing both domestic and foreign audit and tax clients. In private industry, she was involved in the regulatory environment, specializing in technical accounting, internal controls, and SEC reporting for publicly held companies. She can be reached at Dalia@mycpasolutions.com



 
 
 
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