If you made any donations to charitable organizations last year, do not forget to declare them in your tax return. However, you have to abide by certain IRS guidelines in order for your donation to become tax deductible. This is because the IRS pays close attention to those making charitable donation deductions in their tax returns and it’s easy to be flagged if you don’t toe the line. So here are some IRS tips on how to avoid an audit when submitting your charitable donations for a tax deduction. Click here to read or watch more IRS Help resources.
Your donations can only be made to a qualified charitable organization, not just any charitable organization and certainly not to a political organization or an individual. So if your donation was not to a qualified charitable organization, you should not include it in your tax return. If you do, it will trigger a red flag when the IRS vets through it. To find out if a charitable organization is qualified as a tax-free organization, refer to the IRS website, www.irs.gov.
You have to deduct the value you of any benefit receive in return for the donation. Suppose you bought some items at a fundraising sale organized by a charitable organization. You cannot submit the full price you paid for the items in your tax return. Instead, you have to evaluate the actual value of the items bought and deduct it from the price you paid to buy them.
You should value all non-cash donations fairly and accurately. If you donated any property, you need to calculate its fair market value. If you donated any stocks or bonds, you should take their value as the market value at the time of donation. Used clothing and household items must generally be in good condition to be deductible. Donations of vehicles are subject to special rules.
If you donated in cash, you have to submit full documentation along with your tax return. Full documentation includes the official receipt, a letter from the charitable organization confirming your donation that must bear the name of the organization, date and amount of donation, and your bank record or a payroll deduction record that substantiates the donation.
If you made a deduction of any sort (cash or non-cash) worth $250 or more, you must include a written statement from the charitable organization showing the donated cash amount or a description of the non-cash items donated, and stating whether the organization provided any goods or services in exchange for the donation.
You must itemize all deductions on Form 1040 Schedule A. If the total for the year for non-cash contributions exceeds $500, you must file Form 8283, Noncash Charitable Contributions. On the other hand, if one item or a group of similar items are donated that are valued at more than $5,000, Section B of Form 8283 must be completed, usually by a qualified appraiser.