As we head into the Holiday Season and the end of the year, my thoughts turn to gifts and giving. One of my favorite memories of Christmas is when my grandchildren and I select a name of a family from one of the Angel Trees in our community and we go shopping for gifts for a needy family.
When the kids were small it was hard for them to buy gifts for other children and nothing for themselves which was part of the lesson that I wanted them to learn. Now it is easier for them and makes their holiday season even more joyful, knowing they are helping those less fortunate. Another benefit of giving is that it may be a deduction from your tax return. Here is a refresher on the charitable donations rules which could free up more of your money to give away!
- Be sure to give to a qualified organization. To determine if an organization is qualified, you can ask the organization and they should be able to tell you as they are required to apply to the IRS for qualification. You can also go online and check the status by going to www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check. Your contribution to a particular individual or family will not be tax deductible unless it goes through a qualified organization.
- For cash contributions under $250, you need to have your cancelled check or a receipt from the charity with the charity name, amount and date.
- For cash contributions over $250, in addition to the above, you need to have a written acknowledgement from the charitable organization that includes the following:
- The name and address of the charity.
- The date and the amount of the contribution.
- Whether you received any goods or services as a result of the contribution and if so, what you received and the value of what was provided. If the only benefit was an intangible religious benefit, the acknowledgement must state that benefit.
- This letter must be received on or before the due date including extensions of your tax return.
- For non-cash items under $500, you also need to retain your receipt. Be sure the receipt has the name of the organization, the date and location of the contribution, and a description of the property donated.
- Keep a detailed list of the items donated and an estimate of their value. Some of the charities, such as the Salvation Army, have a listing of clothing/household items with a range of suggested values that you can use to determine the worth of your donated goods. There are also computer programs available on-line for little or no cost that will help you value your contributions.
- For non-cash over $500 but under $5,000, additional information is required for reporting on the tax return such as the property’s cost or basis, and how and where the property was acquired.
- For non-cash contributions over $5,000, an appraisal of the item as well as all of the above detailed information is required.
- Out-of-pocket expenditures for providing services. You must have records to prove the amount of the expenses and if you have an expense that exceeds $250, you need a written acknowledgement from the organization with the requirements as reported above.
These requirements may seem cumbersome or excessive, but the price of not following these rules can be the loss of the tax deduction resulting in more tax owed plus interest and penalties. Giving is good for the soul, but giving more than required to Uncle Sam is just unnecessary.
A little more about us:
Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen, Hurst, Clark & Smith, P.C. celebrates 65 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and investment expertise.
Established in 1946, our staff has grown from 3 to 60 employees, making us large enough to provide our clients with a broad base of experience and resources, yet small enough to offer very personalized service—which we feel makes us stand apart from other CPA firms. In addition to the traditional services of Accounting, Tax Preparation, Audit and Business Consulting, MHC&S offers our clients specialized services including Estate Planning, Business Valuations, Cost Segregation Studies, Retirement Planning, QuickBooks Training, Financial Advisory Services, Fraud Detection and Deterrence, Business Succession Planning, Litigation Support and more.
MHC&S is a member of CPAmerica International, Inc., a national association of accounting firms offering membership to only 90 firms throughout the United States. This association offers a wide pool of additional technical expertise to the members firms, as well as continuing professional education necessary to maintain the degree of excellence which MHC&S feels is vital in today’s business environment.