WASHINGTON
— Individuals and businesses making contributions to charity should keep
in mind several important tax law provisions that have taken effect in recent
years.
One provision offers older owners of
individual retirement arrangements (IRAs) a different way to give to charity.
There are also rules designed to provide both taxpayers and the government greater
certainty in determining what may be deducted as a charitable contribution. Some
of these changes include the following.
Special
Charitable Contributions for Certain IRA Owners
An
IRA owner, age 70 ½ or over, can directly transfer tax-free up to $100,000
per year to an eligible charitable organization. This option, created in 2006
and recently extended through 2009, is available to eligible IRA owners, regardless
of whether they itemize their deductions. Distributions from employer-sponsored
retirement plans, including SIMPLE IRAs and simplified employee pension (SEP)
plans, are not eligible.
To qualify, the funds
must be contributed directly by the IRA trustee to the eligible charity. Amounts
so transferred are not taxable and no deduction is available for the amount given
to the charity.
Not all charities are eligible.
For example, donor-advised funds and supporting organizations are not eligible
recipients.
Transferred amounts are counted
in determining whether the owner has met the IRA’s required minimum distribution
rules. Where individuals have made nondeductible contributions to their traditional
IRAs, a special rule treats transferred amounts as coming first from taxable funds,
instead of proportionately from taxable and nontaxable funds, as would be the
case with regular distributions. See Publication 590, Individual Retirement Arrangements
(IRAs), for more information on qualified charitable distributions.
Rules
for Clothing and Household Items
To be deductible,
clothing and household items donated to charity must be in good used condition
or better. A clothing or household item for which a taxpayer claims a deduction
of over $500 does not have to be in good used condition or better if the taxpayer
includes a qualified appraisal of the item with the return. Household items include
furniture, furnishings, electronics, appliances, and linens.
Guidelines
for Monetary Donations
To deduct any charitable
donation of money, regardless of amount, a taxpayer must have a bank record or
a written communication from the charity showing the name of the charity and the
date and amount of the contribution. Bank records include canceled checks, bank
or credit union statements, and credit card statements. Bank or credit union statements
should show the name of the charity, the date, and the amount paid. Credit card
statements should show the name of the charity, the date, and the transaction
posting date.
Donations of money include those
made in cash or by check, electronic funds transfer, credit card, and payroll
deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form
W-2 wage statement or other document furnished by the employer showing the total
amount withheld for charity, along with the pledge card showing the name of the
charity.
These requirements for monetary donations
do not change or alter the long-standing requirement that a taxpayer obtain an
acknowledgment from a charity for each deductible donation (either money or property)
of $250 or more. However, one statement containing all of the required information
may meet the requirements of both provisions.
To
help taxpayers plan their holiday-season and year-end giving, the IRS offers the
following additional reminders:
- Contributions are deductible in the
year made. Thus, donations charged to a credit card before the end of the year
count for 2008. This is true even if the credit card bill isn’t paid until
next year. Also, checks count for 2008 as long as they are mailed this year.
- Check
that the organization is qualified. Only donations to qualified organizations
are tax-deductible. IRS Publication 78, available online and at many public libraries,
lists most organizations that are qualified to receive deductible contributions.
The searchable online version can be found at IRS.gov under “ Search for
Charities.” In addition, churches, synagogues, temples, mosques and government
agencies are eligible to receive deductible donations, even though they often
are not listed in Publication 78.
- For individuals, only taxpayers
who itemize their deductions on Form 1040 Schedule A can claim deductions for
charitable contributions. This deduction is not available to people who choose
the standard deduction, including anyone who files a short form (Form 1040A or
1040EZ). A taxpayer will have a tax savings only if the total itemized deductions
(mortgage interest, charitable contributions, state and local taxes, etc.) exceeds
the standard deduction. Use the 2008 Form 1040 Schedule A, available now on IRS.gov,
to determine whether itemizing is better than claiming the standard deduction.
- For all donations of property, including clothing and household
items, get from the charity, if possible, a receipt that includes the name of
the charity, date of the contribution, and a reasonably-detailed description of
the donated property. If a donation is left at a charity’s unattended drop
site, keep a written record of the donation that includes this information, as
well as the fair market value of the property at the time of the donation and
the method used to determine that value.Additional rules apply for a contribution
of $250 or more.
- The deduction for a motor vehicle, boat or airplane
donated to charity is usually limited to the gross proceeds from its sale. This
rule applies if the claimed value of the vehicle is more than $500. Form 1098-C,
or a similar statement, must be provided to the donor by the organization and
attached to the donor’s tax return.
- If the amount of a taxpayer’s
deduction for all noncash contributions is over $500, a properly-completed Form
8283 must be submitted with the tax return.
