Monday, December 18, 2006

IRS Tips and Updates for Charitable Donations

Keep the following in mind to avoid the agony of an unsuccessful donation deduction:

Clothing, furniture, electronic gadgets and other household items generally must be in at least good condition to qualify for deduction starting on August 17.

Cash donations after August 17 must include bank record or written communication with date, amount and name of charity. Checks and bank statements may qualify if the information above is provided.

Autos, boats and similar property donations are limited to gross proceeds on sale if amount claimed exceeds $500.

Additional IRS tips:

Taxpayers may donate up to $10,000, tax-free, to most qualifying charities from their IRAs. Make sure NOT to claim a deduction on the donation.

Donations are deductible in year made (donation made on credit card on December 22, 2006 is 2006 donation even if credit card payment is made on January 4, 2007).

Make SURE that you donate to a qualifying charity. Foreign-based charities generally do not qualify; donations to private foundations and certain tax-exempt organizations may not qualify. Most smaller houses of worship DO qualify, even though not listed in IRS Publication 78.

At present, taxpayers must itemize to deduct charitable donations. This means that donations cannot be taken if 1040-A or 1040-EZ is used; likewise, there has to be enough in itemized deductions (including interest, taxes and sometimes casualty/theft, medical and miscellaneous) to cover the standard deduction--certain taxpayers with adjusted gross income over $100,000 may also have to worry about a partial "recapture" of itemized deductions. An approach which works in some cases: Make a "double donation" at the end of one year to cover two years (example: a late December 2006 "double donation" to cover 2006 AND 2007).


Blogger WileE said...

Small correction. The limit on direct gifts from IRAs (for those at least 70-1/2) is $100,000 both for this year and 2007. At that time, this special provision is schedule to expire.

2:02 PM  
Blogger Dan Meyer said...

Thanks for the update. Would have thought that Accounting Web would have been more careful. Oh, by the way--was this one of the provisions extended 10 days ago?

8:32 AM  
Blogger WileE said...

No. This was part of the Pension Protection Act passed back in August. There wasn't anything of note related to charities among the extenders.

11:04 AM  
Blogger Chris said...

People do need to be aware of the rule changes with regards to 'big item' donations. For example, on boat donations, you need a receipt from the charity to prove how much the boat was sold for.

12:39 PM  

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