Charitable Deductions

Gifts made to charitable organizations may be deductible on your personal tax return. To qualify for this deduction, however, certain requirements must be met.

One of the most misunderstood aspects of claiming the deduction for charitable contributions is the entity the donations are being made to. For the deduction to be claimed, the entity receiving the donation must be a qualified organization. Qualified organizations include churches, non-profit educational institutions, governmental entities, scientific or literary organizations, or similar entities. However, political organizations, civic leagues, for-profit organizations, individuals, and similar entities are not considered qualified in regards charitable contributions.

Donations made to your church, typically, will be deductible, assuming your church qualifies for non-profit status. Likewise, money given to the Red Cross, or similar charitable organizations, will qualify for this deduction. However, contributions to your favorite political candidate do not qualify. Generally speaking, contributions made to most non-profit organizations will qualify and most contributions to for-profit entities will not qualify for claiming this deduction.

When making charitable contributions, you should maintain records of any and all donations you make, as with all other financial and tax issues. For contributions over $250, you must have a statement from the organization. However, this only applies to single contributions of $250 or more; if you make several donations totaling more than $250, this requirement does not apply. If you donate $25 to your church every week, you will not be required to have a statement from them for the total contribution.

When it comes to contributions of less than $250, you should keep cancelled checks or a legible statement accounting the donation, a receipt if you receive one, and any other personal records you may produce. You should maintain these records in case you get audited by the Internal Revenue Service. This may seem extreme, but it is better to have adequate and organized records should the worst happen.

You may also take a deduction for gifts of property made, such as clothing or food. When it comes to clothing or other personal property, you may only claim the fair market value of the property, not the purchase price of the items. This would be reflected in the amount it could be sold in a garage sale or thrift shop. Deductions made on gifts of other property, such as cars, boats, or airplanes after 2004, is limited to the gross sale of the proceeds from the sale of the property. This was enacted as a countermeasure to combat fraudulent activities regarding these types of donations.

The amount you may deduct due to charitable contributions is limited by your adjusted gross income (AGI). You may claim charitable contributions up to 20% of AGI with little problem. The overall limit is 50% of your AGI, but may be reduced under certain circumstances, such as those regarding capital gain property. Depending on the amount you contribute and the type of property, you may be required to prepare form 8283.

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