Have you heard of “Giving Tuesday” yet? On December 1, 2015, many charities used “Giving Tuesday” as a catchy way to launch their year-end fundraising campaigns. It’s a critical time of year for the not-for-profit sector. Historically, a significant amount of charitable donations occur in the last weeks, days and even hours of the year
In order to minimize your 2015 tax bill, here are some tips to help ensure you can deduct contributions before opening your checkbook, cleaning out your basement, or donating your time to your favorite charitable organizations.
Last year was the fifth consecutive year of increased generosity. Charitable contributions reached approximately $358.38 billion in 2014, finally surpassing the prerecession peak of $355.17 billion in 2007, according to theGiving USA 2015 study.
In 2014, the average U.S. household donated $2,030 to charities. Individuals donated 72% of the total amount given to charities in 2014, far more than all other sources (corporations, foundations and bequests) combined. Donations from individuals grew 5.7% in 2014.
Following IRS Guidelines
In order to deduct charitable contributions on your tax return, you must itemize deductions and follow these rules:
- Your contributions must be made to “qualified” organizations. To see whether an organization qualifies, visit the IRS’s online search tool, Exempt Organizations Select Check. Giving money to an individual or a foreign organization generally isn’t deductible, except for donations made to certain qualifying Canadian not-for-profits.
- Household items include furniture, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better. However, this requirement may be waived for deductions of clothing or household items of more than $500 if you include a qualified appraisal with the return.
- For a charitable donation of cash, you must have a bank record or a written document from the charity, regardless of the amount. Bank records include canceled checks, bank or credit union statements, and credit card statements. These statements should show the name of the charity, the date and the amount paid. Credit card statements should also show the transaction posting date.
If a contribution provides you with merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
Documenting Higher Value Gifts
IRS substantiation rules vary depending on how much you’re claiming for each contribution:
Gifts of $250 or more (cash or property). You must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization, or a receipt.
If the acknowledgment states whether the organization provided goods or services in exchange for the gift, the organization must provide a description and a good faith estimate of the value of the goods or services. One document from an organization can satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.
Deduction for a noncash contribution worth more than $500. IRS Form 8283 must be filled out and attached to your return. You are also required to maintain written records with respect to each item of donated property that include:
The approximate date the property was acquired and the manner of its acquisition,
- The cost or other basis of the property,
- A description of the property.
- The fair market value of the property at the time it was contributed, and
- The method used in determining its fair market value.
The term “similar items of property” is defined to mean property of the same generic category or type, such as clothing, jewelry, furniture, electronic equipment, household appliances or kitchenware. Similar items of property are combined for purposes of the substantiation rules
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. IRS Form 1098-C or a similar statement must be provided to the donor by the organization and attached to the donor’s tax return.
Deduction for a contribution of noncash property worth more than $5,000. You must obtain a qualified appraisal, unless you’re giving publicly traded securities. The threshold is $10,000 for nonpublicly traded securities. If you claim a deduction for a contribution of noncash property worth more than $500,000, you must attach the qualified appraisal to your return.
Maine Employers May Encourage Donations
To encourage charitable giving, many Maine-based employers offer gift-matching programs, typically matching employee gifts on a dollar-for-dollar basis. But some match $2, $3 or more for every dollar of qualifying employee donations. In other words, if your employer participates in a gift-matching program, filling out the requisite paperwork might more than double the money that’s received by your favorite charity. However, restrictions may apply so be sure to check the details of the program.
Maine employers also may encourage workers to volunteer their time. In 2014, 40% of Fortune 500 companies offered volunteer grants, according to the 2015 Giving in Numbers study published by CECP, a nonprofit coalition of corporate CEOs. These grant programs typically contribute $8 to $15 per hour volunteered by employees to eligible charities. In addition, 59% of the companies that participated in the Giving in Numbers study offered employees paid-release time volunteer programs in 2014, up from 54% in 2012.
Making Last-Minute Donations Count
Many people put off donating until the last minute. Fortunately, you have until December 31 to donate for the 2015 tax year, as contributions are deductible in the tax year they’re made. Also, consider that donations made online, by phone or using social media that are charged to a credit card on or before midnight on December 31 count for 2015, even if the bill isn’t paid until 2016. Mailed checks also count for 2015 as long as they’re postmarked no later than December 31, 2015.
If you plan to deduct a sizable charitable contribution on your 2015 tax return, consult with Filler & Associates, or your tax adviser, before year end to ensure you’re following all the rules.