Working on your tax returns? Here are a few tips with regard to charitable deductions.
Valerie RumboughAny time you declare charitable donations as deductions on your tax returns, you need to have written proof that you actually made the donation. Claiming unusually large deductions can raise a red flag with the IRS – especially if the amount donated is high relative to your income. The IRS seems to be stepping up its investigations of both cash and non-cash donations this year, according to David Sands, a tax partner at Buchbinder, Tunick and Co.
Determining the value of non-cash items such as artwork, cars, clothing and furniture can be difficult. For smaller items, you’ll need to assess the value yourself, usually based on resale value at the time of donation. For most items valued over $500, the IRS will require a qualified appraisal.
Make sure you have the receipt when taking a charitable deduction, no matter how small, and for any donation of more than $250, be sure to get a letter from that charitable organization. Donating stocks and other securities can be difficult as well. You must have owned the stock for at least one year and one day in order to deduct the fair market value. Otherwise, you may only deduct your cost. However, if the stock is worth less than what you paid for it, you guessed it, you have to use the lower amount. There is even a special formula you must use for determining the value.
Confused? Call your favorite CPA or financial planner and ask for help. It is better to pay a little to get it right the first time. I like to use the words of the auto mechanic in a recent commercial: “You can pay me now, or you can pay me later.” Paying now will be much cheaper!
Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.