If you are feeling charitable this holiday season, you should understand the rules about giving – if you want the IRS to reward you for your generosity.
Here are eight tips to keep in mind when you are donating to charities:
1. To capture a tax deduction for your donation, you must itemize deductions on your tax return.
2. You can only deduct gifts to qualified charities. Use the charity tool on the IRS website to see if your favorite charity is qualified. Donations to churches, synagogues and mosques are deductible even if they are not included in the IRS database.
3. If you donate $250 or more, make sure you get written acknowledgment from the recipient organization for each donation of money or property. If it’s under that amount, you can rely on bank or credit card statements or cancelled checks.
4. If you donate used items such as clothing and household goods to charity, they generally must be in at least good condition to qualify for a tax deduction. You can claim the fair market value of these items. If you claim a deduction of over $500 for an item, it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.
5. If your non-cash contributions exceed $500, you must submit IRS Form 8283; Noncash Charitable Contributionsopens PDF file with your tax return.
6. Special rules exist for donations of vehicles, boats or airplanes. Rather than being able to claim fair market value, the IRS generally limits the deduction to the actual sale price of the vehicle when sold by the charity.
7. You can deduct contributions in the year you make them. So if you write a check or make a donation to the American Heart Association on Dec. 31, 2015, you can claim the deduction on your 2015 return, even though the charity won’t process your donation until 2016. This is also true even if you don’t pay the credit card bill until 2016.
8. Consider donating securities instead of cash. If you sell a profitable investment and give the proceeds to charity, you are subject to tax on the gain. If you transfer the security to the charity instead, you avoid the tax and pocket a deduction based on the market value of the investment on the date of the donation. A donation of appreciated securities that have significant built-in gains is one of the most tax-efficient ways to give to charity.