The Protecting Americans from Tax Hikes Act of 2015, signed into law by President Obama, permanently extends certain tax provisions that were set to expire at the end of 2015. Some notable provisions that have been permanently extended relate to charitable giving incentives.
These include deductions which:
- allow for charitable contributions of real property for conservation purposes;
- allow taxpayers over age 70½ to make non-taxable donations directly from an IRA of up to $100,000; and
- require an S corporation shareholder to reduce his/her basis in the S corporation’s stock under Internal Revenue Code §1366 only for his/her share of the basis of property contribution by the S corporation rather than the fair market value.
In addition, with year-end upon us, on November 25, 2015, the Internal Revenue Service (“IRS”) issued Information Release (“IR”) 2015-134. IR 2015-134 is similar to IR 2014-10 released in November, 2014 and was issued to remind both individuals and businesses that, when making contributions to charities, there have been several important tax law provisions introduced in recent years that should be kept in mind.
Prior to making any charitable donation, the IRS encourages taxpayers to ensure that the charity is one that will allow for the donation to be tax-deductible. Only donations that are made to eligible charities are tax-deductible. Select Check, a searchable database of eligible charities, is available on www.irs.gov to search whether or not a charity is eligible to receive tax-deductible contributions. In addition to qualified public charities, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the database.
Charitable Contributions of Clothing and Household Items
Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good condition or better to be qualify as tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
Public charities are required to issue a written acknowledgement to donors for all gifts worth $250 or more. It must include, among other things, a description of the items contributed and the amount that is tax-deductible to the donor.
Regardless of the amount of the monetary donation, taxpayers must have a bank record or a written statement from the charity in order to claim the deduction on their tax return. Included in their records must be the name of the charity along with the date and amount of the contribution.
For charitable donations automatically deducted from a taxpayer’s wages, taxpayers should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
Additionally, it is important to note that there has been no change in the requirement that taxpayers obtain a donor acknowledgement from the charity for each deductible donation, of either money or property that is valued at $250 or more.
Contributions are deductible in the year in which they are made. If the donation is made using a credit card before the end of 2015, it will count as a contribution for 2015; even if the credit card bill is not paid until 2016. In addition, checks count for 2015 as long as they are mailed on or before December 31, 2015.
For all donations of property, including clothing and household items, taxpayers should obtain from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. However, if the donation is made at a charity’s unattended drop site, a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value should be retained.
Only individual taxpayers that itemize their deductions on Form 1040 Schedule A, Itemized Deductions, can claim deductions for charitable contributions. A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction.
Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes, or a similar statement, must be provided to the donor by the receiving organization and attached to the donor’s tax return. The amount of the taxpayer’s deduction for a car, boat or airplane donated to a charity is generally limited to the gross proceeds from its sale.
It is important for taxpayers to retain supporting documentation in order to substantiate all charitable donations. These new requirements do not change the long-standing requirement that a taxpayer obtain an acknowledgement from a charity for each deductible donation, either money or property, of $250 or more. However, one statement containing all of the required information may meet both requirements.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283, Noncash Charitable Contributions, must be submitted with the tax return.
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