Since no good deed goes unpunished, the federal income tax rules for deducting personal charitable donations are complicated. Here’s what you need to know to claim your rightful deductions:
Charitable deduction basic
Depending on the type of charity and whether you contribute cash or other stuff, your charitable write-off can potentially be limited to 20%, 30% or 50% of your adjusted gross income (AGI). AGI is the number at the bottom of Page 1 of your Form 1040. It includes all taxable income items and selected write-offs such as the ones for alimony paid and moving expenses. Contributions that exceed the applicable AGI limit can be carried over for up to five years and hopefully deducted in those future years.
Documentation requirements
You can only deduct donations for which you have the required documentation. Here are the details on the documentation rules.
Cash donations under $250
To deduct a cash donation of $250 or less, the best proof of your generosity is a canceled check or credit card statement. Preferably, you should also get a receipt from the organization showing its name, the date and place of the contribution, and the amount given. For small cash donations, say to your church when attending weekly services or to the Salvation Army around the holidays, keep a log to satisfy the IRS.
Noncash donations under $250
To deduct the donation of a noncash item worth less than $250, you need a receipt — like the familiar slips you get for donations to Goodwill. The receipt should show the organization’s name, the date and place of the donation, and a description of what you donated. You may have to fill in most of this information yourself. You must also place a value on the donated item(s). Finally, you must have the receipt in hand by the time you file your return to claim your rightful deduction.
Cash donations of $250 or more
To deduct cash donations of $250 or more, canceled checks or other evidence supplied by you is not good enough for the IRS. Instead you must collect from the charity a contemporaneous qualified written acknowledgment (more detailed than a simple receipt) that meets IRS guidelines. You need to have this acknowledgment in hand by the time you file your return in case you get audited. If you do get audited and don’t have it, you lose the deduction even though there may be no doubt you made the donation.
