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 Tax-Free Charitable Distributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2013, offers
older owners of individual retirement arrangements (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, first available in
2006, can be used 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 transferred directly by the IRA trustee to the
eligible charity. Distributed amounts may be excluded from the IRA owner’s
income – resulting in lower taxable income for the IRA owner. However, if the
IRA owner excludes the distribution from income, no deduction, such as a
charitable contribution deduction on
Schedule
A, may be taken for the distributed amount.
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 amounts distributed to charities 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 Charitable Contributions of Clothing and Household Items
To be tax-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.
Donors must get a written acknowledgement from the charity for all gifts
worth $250 or more that includes, among other things, a description of the
items contributed. 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 2013 count for 2013.
This is true even if the credit card bill isn’t paid until 2014. Also,
checks count for 2013 as long as they are mailed in 2013.
- Check that the organization is eligible. Only donations
to eligible organizations are tax-deductible. Exempt
Organization Select Check, a searchable online database available on
IRS.gov, lists most organizations that are eligible to receive deductible
contributions. In addition, churches, synagogues, temples, mosques and
government agencies are eligible to receive deductible donations, even if
they are not listed in the database.
- 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 2013 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 car, 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.
- And, as always it’s important to keep good records and
receipts.
IRS.gov has Additional information on charitable giving including:
