In the rush to get tax returns prepared and filed, many people absentmindedly forget to include deductions for contributions to charities. If you itemize deductions on your tax return, this can be an expensive omission.
Pursuant to relevant provisions of the tax code, you can take significant deductions if you donate money or goods to a qualified charity. A qualified charity is one that is registered with the IRS as a 501c3 entity. The 501 designation refers to the relevant section of the tax code.
Importantly, not all charitable organizations are qualified with the IRS. You can go to the IRS web site and search through a list to see if a particular group is included. If they are not, red flags should go be raised.
Before claiming your deduction for donations, there are a couple of things to keep in mind:
1. Politics - You may feel strongly about certain political ideologies, issues or candidates. You can contribute to the causes, but you can't deduct the contributions as charitable giving.
2. You can only deduct contributions actually made for the year in question. If you forgot to claim donations on your tax return for the 2004 year, you cannot claim them on a 2005 return. Instead, you should go back and amend the 2004 return.
3. If you make a contribution for a good or service, you can only deduct the amount you contribute which is in excess of the fair market value of the good or service. For instance, many charitable groups will hold auctions to raise money. If your winning bid for a two night hotel stay is $800, you can claim a deduction for the bid amount minus the normal cost. You cannot just write off $800.
4. In general, donations of stock or property should assigned the fair market value, not an arbitrary figure based on your opinion. Big ticket items should be supported with an appraisal.
5. The rules for donating automobiles have changed. The charitable group should have sent you correspondence regarding the amount it was able to sell the vehicle for. This is the amount you can deduct, not the blue book amount previously allowed. If the charity has not sent you anything, call them to get written confirmation. They know it has to be done under new IRS regulations.
Donating to charities is positive moral step. Make sure to claim your deductions to reap savings on your taxes.
