Tax Tips for Holiday Charity Donations
During the holidays, many charities solicit gifts of money or property. This article includes tips for documenting your charitable gifts so that you can claim a deduction on your tax return.
Cash Donations – To claim a charitable deduction, you normally must itemize your deductions. However, for 2021, non-itemizers filing a joint return can deduct up to $600 of cash contributions below-the-line. The limit is $300 for other filing statuses. Donations to donor-advised funds and private foundations aren’t eligible for this below-the-line deduction. Below-the-line means that the deduction is claimed after determining your adjusted gross income (AGI) and as part of the calculation of taxable income.
Non-cash Contributions – Non-cash contributions are also deductible but only if you are itemizing your deductions (i.e., using Form 1040 Schedule A). Generally, contributions of this type must be in good condition, and they can include food, art, jewelry, clothing, furniture, furnishings, electronics, appliances, and linens. Items of minimal value (such as underwear and socks) generally are not deductible. The deductible amount is the fair market value of the items at the time of the donation, and as with cash donations, if the value is $250 or more, you need to save an acknowledgment from the charity for each deductible donation. Be aware: the door hangers left by many charities after they pick up a donation do not meet the acknowledgment criteria; in one court case, taxpayers were denied their charitable deduction because their acknowledgment consisted only of door hangers. When a non-cash contribution is worth $500 or more, the IRS requires Form 8283 to be included with the return, and when the donation is $5,000 or more, a certified appraisal of the item(s) donated is generally required.
Vehicle Donations – Special rules also apply to donations of used vehicles when the claimed deduction exceeds $500. The deductible amount is based upon the charity’s use of the vehicle, and a Form 8283 is required. A charity accepting used vehicles as donations is required to provide a Form 1098-C (or an equivalent) to properly document the donation.
AGI Limitations – Charitable donations are also limited by a taxpayer’s AGI. For instance, most charitable contributions are limited to 60% of an individual’s AGI, while contributions of capital gain property deducted at fair market value are limited to 30% of AGI. There are other seldom encountered limitations as well.
If you have questions or concerns about your 2021 charitable donations or about the documentation required to claim deductions for them, please call this office.