Tax-savvy individuals and business often seek out legitimate ways to reduce their tax liabilities. One of most common and effective ways to decrease the amount of money you’ll be forced to shell out to Uncle Sam is to take advantage of year-end gifts to charity. It’s important to note, however, that when it comes to charitable deductions, the Internal Revenue Service has specific requirements that must be met and followed.
For example, in cases where an individual or business donates household goods, furniture or clothing to a charity; the donated materials must be in good or usable condition in order to qualify as tax deductable. Additionally, the IRS requires that any donations made in the amount of $250 or more are accompanied by written acknowledgement and documentation from the charitable organization.
When it comes to monetary charitable donations, any amount that an individual or business plans to deduct must be documented by the charity and provided in written form via a “bank record or written statement.” A taxpayer must also take steps to ensure that a charity is included in the IRS’ database of qualified charities and that he or she uses Form 1045 Schedule A to itemize any and all deductions.
When making non-monetary charitable deductions, the value of a deduction is based on the property’s “fair market value.” For property deductions in excess of $500, an appraisal proving an item’s worth can also be used as proof of a deduction value.
As with any tax-related matter, it’s important to maintain accurate records of all deductions and related values. Taxpayers are also advised to heed deduction limits which currently stand at 20 percent of an individual’s gross income.
Source: IRS.gov, “Tips from IRS for Year-End Gifts to Charity,” Dec. 1, 2015
IRS.gov, “Can I Deduct My Charitable Contributions?,” Dec. 1, 2015