Taxpayers in our country routinely make charitable contributions. By making your favorite philanthropic contribution, generally at the same time you receive a sizable tax benefit.
For example, if you make a $1500 donation to your alma mater, and you are in the 25% tax bracket, this donation reduces your taxes by $375.
Taxpayers are required to have evidence: a canceled check, an account statement, or written receipt from the charity, to prove that the contribution was made.
For taxpayers who donate over $250, they must receive a written acknowledgment from the organization that received the funds which indicates the money, goods or services provided in return for your donation. If the taxpayer claims deductions for property valued at $500 and more, form 8283 must be attached to the taxpayer’s tax return. If the value of the contribution is $5000 or more a written appraisal must be obtained.
For taxpayers who donate their car, and its valued is over $500, Form 1098 – C must be attached to the taxpayer’s tax return.
Taxpayers face a “deduction ceiling,” depending on the type of donation, and the nature of the charity. The deduction ceiling is based on Adjusted Gross Income.
If the taxpayers adjusted gross income exceeds the threshold for the filing status of the taxpayer, his or her charitable contribution deduction is subject to the itemized deductions limitations outlined below:
Deduction ceilings of 50%, 30%, and 20% – of adjusted gross income applies depending on the nature of both the organization and the donated property. As a general rule, cash has a 50% of AGI ceiling. “Appreciated Property” has a 30% ceiling if it was held “long-term”, i.e. one year or longer.
There are a number of requirements for the taxpayer to claim the tax deduction, the most basic of which is the nature of the nonprofit organization. A domestic nonprofit organization, trust, fund, or foundation that is operated exclusively for the following purposes will allow the taxpayer to claim the deduction.
- religious organizations – payments for dues to churches and synagogues, pew rents, assessments, etc., are all deductible.
- scientific, educational, and literary – this group includes hospitals, colleges research organizations and other schools that do not maintain racially discriminatory policies.
- prevention of cruelty to animals, or children – enough said.
- amateur sports competition – this is an unusual one, because the organization’s activities must not provide athletic facilities or equipment.
- domestic nonprofit veterans organizations and auxiliary units.
There are others of course, fraternal groups, cemetery and burial companies, legal services, Corporation’s established under the Legal Services Corporation Act, etc. But, numbers 1 through 5 above represent most of the areas where tax deductions occur.