November 30, 2017 | Posted in:

6 Tax Considerations for Charitable Contributions

Charities and non-profits depend on donations from individuals. By helping out a deserving cause, taxpayers also get the benefit of a tax deduction. Unfortunately, charitable donations are under scrutiny by the IRS, and many donations without adequate documentation are being rejected.

Here are six things you need to do to ensure your charitable donation will be tax-deductible:


1) Make sure your charity is eligible.

Only donations to qualified charitable organizations registered with the IRS are tax-deductible. You can confirm an organization qualifies by calling the IRS at (877) 829-5500 or visiting the IRS website.

Applying for and obtaining a qualified charitable status is a lengthy process.  A charity may begin operations while waiting for IRS approval.  Make sure the charity has already received qualified status before you donate.


2) Itemize.

You must itemize your deductions using Schedule A in order to take a deduction for a contribution. If you’re going to itemize your return to take advantage of charitable deductions, it also makes sense to look for other itemized deductions. These include state and local taxes, real estate taxes, home mortgage interest and eligible medical expenses over a certain threshold.

“If itemizing, you should certainly deduct all items allowable by law,” advises Associate Partner Julie Strohlein, CPA.  “Don’t make financial decisions based on deductions alone, however.  For instance, keeping a mortgage in order to deduct the interest doesn’t make sense if you are able to pay the loan off.  Spending one dollar in interest simply in order to save 25 cents in tax is not prudent.”


3) Get receipts (and keep them).

Get receipts for your deductible contributions. Receipts are not filed with your tax return but must be kept with your tax records. You must get the receipt at the time of the donation or the IRS may not allow the deduction.

Another tip from Julie: “Make sure the proper information is included on your receipt.  Some smaller charities may not be aware of all that is required.  The receipt or letter should include the name of the charity, the date and amount of the contribution, whether or not any goods or services were received in exchange for the contribution, and the value of the goods or services received, if any.”

“Current tax law says that you must keep written acknowledgement for any deduction of $250 or more. Proposed legislation would change that to a $1 threshold,” adds Ren Cicalese III, CPA. MST.


4) Pay attention to the calendar.

Contributions are deductible in the year they are made. To be deductible in 2017, contributions must be made by Dec. 31, although there is an exception. Contributions made by credit card are deductible even if you don’t pay off the charge until the following year, as long as the contribution is reported on your credit card statement by Dec. 31. Similarly, contribution checks written before Dec. 31 are deductible in the year written, even if the check is not cashed until the following year.


5) Take extra steps for noncash donations.

You can make a contribution of clothing or items around the home you no longer use. If you decide to make one of these noncash contributions, it is up to you to determine the value of the contribution. However, many charities provide a donation value guide to help you determine the value of your contribution. Your donated items must be in good or better condition and you should receive a receipt from the charitable organization for your donations.


“If you do donate large quantities of clothing, take a picture of the items and keep a list to help you substantiate the donation.  For instance, a photo of ten piles of folded clothing plus a list detailing the number of sweaters, blouses, pants, shoes, etc. can help to prove the validity of your deduction,” Julie recommends.


If your noncash contributions are greater than $500, you must file a Form 8283 to provide additional information to the IRS about your contribution. For noncash donations greater than $5,000, you must also get an independent appraisal to certify the worth of the items.


“Donations of appreciated securities are a good deal,” adds Mike Engleman, CPA . You get the fair market value of the security as a deduction and you avoid paying income tax on the gain if you had sold it.”


Another noncash contribution that Manager Chris Cicalese, CPA recommends for consideration is donating prize winnings. “If you were to win a prize and want to give it to charity, you can reduce your tax by not collecting the prize and donating it directly to the charity. Once you take custody of the prize, it will be considered taxable income to you.”


“Another option for contributing to a charity is a qualified charitable distribution,” offers Kelly Raso, CPA.  “Individuals age 70 ½ or older can make qualified charitable distributions, which are transfers from their IRA’s directly to a qualified charity, limited to $100,000 per individual, per year.  Qualified charitable distributions are not included in the individual’s income or allowed as a charitable deduction.”


6) Keep track of mileage.

If you drive for charitable purposes, this mileage can be deductible as well. For example, miles driven to deliver meals to the elderly, to be a volunteer coach or to transport others to and from a charitable event, can be deducted at 14 cents per mile.

However, adds Ren, “If you drive for charitable purposes, you are required to keep a log stating the purpose of the trip, where it started, where it ended, and how many miles were driven.”


Per Julie, “although there is no tax deduction for volunteering your time, you can deduct expenses you incur. For example, if you must pay to park while serving lunch at a homeless shelter, the parking fee would be a charitable deduction.”


Remember, charitable giving can be a valuable tax deduction – but only if you take the right steps. These 6 must-dos are just a fraction of your tax puzzle. Contact an Alloy Silverstein CPA today for more guidance.


The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information or for assistance with any of your tax or business concerns, contact our office at 856.667.4100.


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