Throughout the year it is common to donate cash to a local charity or drop clothes off at Goodwill after your spring clean. In this post, we will cover those topics along with rules involving donations of a certain value and best practices for each type of donation, categorized below:
Donation Tracking Tool
Hoppe Tax Excel Tracker on Google Drive - FREE
Goodwill Donation Receipt Builder ~ FREE
iDonatedIt app for iPhone ~ $2.99
Hoppe Tax Excel
When it comes to tax time keep a list as you go. We have set up this donation excel sheet (which you can copy to your google drive) and use to track donations through out the year. Put a soft copy of letters and support in the same digital folder (I like to name the folder "Donations"). This ensures if you are ever under audit now or in three years you can quickly prove your deductions.
Now onto more specific rules...
Claiming a charitable deduction is simple when you write a check to a charity or make an online donation with your credit card. The rules for substantiating your claim to a deduction do change at the $250 threshold.
Cash Donations under $250
The following forms showing the organization, amount, and date given will support your deduction
Cash Donations $250 and over
You must have a written receipt, describing the gift, from the charity. Important, the receipt needs to state whether or not the charity gave you any goods or services in exchange for your gift; if so, the receipt must describe them and give an estimate of their value. That portion is not deductible and reduces your donation. See an example of a donation letter (notice in bold that it recognizes no goods or services received).
Non-cash contributions (e.g., clothes) require additional document and IRS forms depending on the value of your gifts. To figure out the value of your gifts, add the value in aggregate of items donated each time (i.e., value of items for each Goodwill donation).
Gifts of Less Than $250
You need a receipt showing:
Clothing and Household Items. The items must be in good condition. A good guide for valuing your donations is Salvation Army’s online Valuation Guide.
Gifts of between $250 and $500
Same rules as cash gifts over $350, you must have a written receipt, describing the gift, from the charity. Important, the receipt needs to state whether or not the charity gave you any goods or services in exchange for your gift; if so, the receipt must describe them and give an estimate of their value. That portion is not deductible and reduces your donation. See an example of a donation letter (notice in bold that it recognizes no goods or services received).
Gifts of between $500 and $5,000
You must file Form 8283, Non-cash Charitable Contributions, with your income tax return and complete Section A of the form if:
Gifts of More Than $5,000
You will need to get an appraisal from a "qualified appraiser" and complete Section B of Form 8283, Non-cash Charitable Contributions. In Section B the qualified appraiser, charity and you sign. An appraisal is required whether you donate one big item or multiple similar items that have a total value of more than $5,000. The rule applies even if you give the items to several charities.
A qualified appraiser is someone who (investopedia):
The appraisal fee may be deductible as a “miscellaneous” deduction, subject to the 2% limit of your adjusted gross income.
Special Rules + Notes
Stocks + Securities. One of the best properties to donate is appreciated stocks. It is a win-win for both you and the charity. DO NOT SELL the securities and donate the cash. Instead donate the stocks directly and the capital gains taxes from selling the securities no longer apply. Plus you get a deduction for the fair market value of the stock.
Gifts of art. If you donate works of art that have a total value of $20,000 or more, you must include a copy of the signed appraisal when you file your tax return. If any one piece of art is worth $20,000 or more, the IRS may ask you for an 8 × 10 color photo of it.
How large a donation you can claim depends on what the charity does with the vehicle. The charity provides information you need for your deduction on IRS Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes. See our other post for more information on donating your vehicle.
CPA + Partner at Why Blu