‘Tis the season when donating to charitable organizations becomes something we actively consider, if for no other reason than society reminds of those that are less fortunate. After work, when we stop at the market to pick up dinner, the Salvation Army has bell ringers stationed outside. Once inside, food drives are being organized to allow us to provide a nice meal for a needy family. Along with the holiday spirit comes the winter season and the associated clothing drives. Local public radio stations are conducting pledge drives, hoping to cash in on a little bit of the generosity and holiday cheer.
Charity is a wonderful way to give back to society. Perhaps you may feel inclined to choose a charity that you believe in and provide a monetary donation. What does this mean for your taxes? Are you donating on behalf of your business, specifically to decrease your tax burden? After all, in just a few short weeks, the New Year will be upon us and we will once again have to consider the prospects of preparing our annual tax returns.
Upon making a charitable donation, your gift may be deductible if the charity you chose is a qualified organization. IRS Publication 526, Charitable Contributions, contains more information on what is a qualified organization. The document has not yet been updated for the 2014 tax year but you can follow it as a guideline. The IRS maintains a database containing qualified organizations for you to search.
No matter the amount, you need to have documentation to support the validity of your contribution. That can be in the form of a bank statement, telephone bill (for text message donations) or a written statement from the charity, including the name, date and amount. Be sure to get a receipt or other statement from the charity in writing if your gift will be over $250 or more. For donations over $250, the charity has to back up your donation for you with paperwork containing the vital information. Most charities will know exactly what you need, as they survive on the kindness of others, but if you have any questions, either consult the IRS Publication 526, or contact me.
In order to deduct a charitable contribution, it is necessary to submit Form 1040. Schedule A (Form 1040) is used to figure your itemized deductions, with a section specifically for Gifts to Charity. Your individual income tax return will contain a line for you to bring over your total deduction from Schedule A.
If you are donating property rather than money, it is necessary to determine the fair market value (FMV) of the property. IRS Publication 561 contains information on how to determine the FMV of clothing, real estate, automobiles, boats, stocks, bonds, jewelry and art, among other forms of property. Depending on the type of property, you may need to have your donation appraised in order to determine the FMV.
For more information on charitable contributions and obtaining the proper documentation, please feel free to email me or call me at (401) 383-9694 and we can work together to determine what is the most fulfilling gift you can make for both you and the charitable organization.