The holiday season is upon us, and for many people that means charitable giving. As a reward for their kind gesture, the philanthropically inclined can look forward to a tax deduction next year when its time to file those returns. Here are some points to ponder when deciding on making those charitable donations ahead of the 2012 tax season.
• A deduction is only available for donations made to a qualified organization. Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. Nonqualified organization include civic leagues, social and sports clubs, labor unions, and chambers of commerce. Most organizations, other than churches and governments, must apply to the IRS to become qualified. If you are wondering whether the organization that is soliciting you for donations is qualified, check Publication 78, which lists many of the qualified charitable organizations recognized by the IRS.
• Individuals looking to deduct a charitable contribution must file a Form 1040 and itemize deductions on Schedule A. This means that you must keep good records, especially if the contribution was made in cash. The IRS advises that you keep a written communication from the charity with the name of the charity, date, and amount of the contribution; or bank records, such as canceled checks or bank statements, containing the name of the charity, the date, and amount.
• Know the limits on charitable deductions. The amount of your deduction for charitable contributions is limited to 50% of your adjusted gross income, and may be limited to 30% or 20% of your adjusted gross income, depending on the type of property you give and the type of organization you give it to. Generally, if your total contributions for the year are 20% or less of your adjusted gross income then you do not have anything to worry about and should be able to take the full deduction.
• Timing is important. You can only deduct your contributions in the year you actually make them in cash or other property. This applies whether you use the cash or accrual method of accounting. The general rule is that a contribution is made at the time of its unconditional delivery. This means that donations by cash, check, or credit card are considered delivered and deductible on the day that they received, mailed, or charged. Promissory notes or conditional gifts are not deductible until a note payment is made or the condition is removed. Sometimes, the IRS carves out special exceptions to these rules that must be followed in order to receive the deduction. For example, following the January 12, 2010 earthquake in Haiti, the IRS took the position that cash contributions made after January 11, 2010, and before March 1, 2010, for the relief of the victims, had to be deducted on the taxpayer’s 2009 return.
For more on the tax treatment of charitable donations, check out IRS Publication 526, Charitable Contributions. Also, if you are looking for more information on tax exempt entities this holiday season, contact an Attorney in Jacksonville who can answer your questions.