April 15, Charitable Giving, contribution, Deductions, IRS Audit Help, Tax Audit

APRIL 15th Is Over – Now What? (Part Three)

April 30, 2014 - April 15, Charitable Giving, contribution, Deductions, IRS Audit Help, Tax Audit

“Contributions” is one of the deductions the Internal Revenue Service likes to audit, examine, or verify. Why is that? Because not everyone is honest. Some people take more of a deduction than they actually give. People ask me, what is the standard? What is the average? The only standard is the standard deduction based on your filing status and your age if you are 65 or older.. If you choose to itemize your deductions, there is no automatic deduction. You are allowed to claim a deduction for what you actually gave. BUT you need to be able to prove your deduction. You must have evidence for what you are claiming. That is not difficult when you get a receipt from the qualified charitable organization. You cannot verity the cash you leave in the donation plate or collection kettle. You can show cancelled checks and credit card statements, but those are not sufficient proof for the IRS. The Tax Auditor wants to see a receipt from the charity. Too many people have cheated on their tax returns and so the IRS tightened the rules. How can you verify what you give in the form of NON-CASH contributions? Just what is a non-cash contribution? I use the technical term “Stuff”. We all have stuff that is crowding our closets or cluttering our homes. And our “trash” is often someone else’s “treasure”. Used clothing and household items must be in good condition or better to be deductible. Charities will receive anything you want to give them. What they cannot use themselves, they will give to another organization. Give, just don’t try to deduct items in less than good condition. The fair market value of used personal items is usually much less than the original cost and depends on the condition and usefulness of the item donated.  Favorite websites I recommend to help determine the fair market values are www.salvationarmyusa.org and www.goodwill.org. When you decide to give away the good stuff you no longer need or want, take these simple money saving steps to support your deduction.  1. Make a list of the items you set aside BEFORE you put them in the box or bag

            a. What are you giving away (Describe each item.)

            b. What condition is each item? (Good? Excellent? New?)

            c. What is this thing worth today? (Use garage sale or thrift store values.)

            d. How many of each type of thing are you giving away?

            e. What is the name and address of the charitable organization?

            f.  What is the date of this contribution? (Note each date you donate.)

     2. Take a photo of what you are giving away to support the list you are making. We know a picture is worth a thousand words, but you need the list, too. This list is required when your non-cash contributions are more than $500. But even if your non-cash contributions are $500 or less, the IRS can still audit your deduction. Protect yourself. Protect your wallet. Protect your deduction.  Make all the contributions you want. Don’t let the tax laws turn you into a “Grinch”. If you feel this is too much work for you, you can skip the paperwork. But if you choose to skip the paperwork, you should skip the deduction, too.