WASHINGTON —
Individuals and businesses making contributions to charity should keep in mind
several important tax law provisions that have taken effect in recent years.
Some
of these changes include the following:
Special Charitable
Contributions for Certain IRA Owners
This provision, currently
scheduled to expire at the end of 2009, offers older owners of individual retirement
accounts (IRAs) a different way to give to charity. An IRA owner, age 70½
or over, can directly transfer tax-free up to $100,000 per year to an eligible
charity. This option, created in 2006, is available for distributions from IRAs,
regardless of whether the owners 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 transfer.
Not
all charities are eligible. For example, donor-advised funds and supporting organizations
are not eligible recipients.
Amounts transferred to a charity
from an IRA are counted in determining whether the owner has met the IRA’s
required minimum distribution. 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 generally 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 meet
this standard 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 the deduction
of monetary donations do not change 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 both requirements.
Reminders
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 2009 count
for 2009. This is true even if the credit card bill isn’t paid until 2010.
Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly
thereafter.
- 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 if
they 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 individuals 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.) exceed the standard
deduction. Use the 2009 Form 1040 Schedule A 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 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.
