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"With the year-end charitable giving season upon us, below is a list of reminders with regard to making and claiming charitable contributions for federal income tax purposes. While the list is not exhaustive, it contains some of the more common issues that can keep individuals from claiming charitable contribution deductions on their tax returns.
1. Meet the substantiation requirements. For contributions of cash or property, always get a receipt from the charity. This rule equally applies to contributions to your own private foundation, even if you are the foundation manager. For contributions of property, the receipt will need to reflect the fair value of the property donated. If the contribution of property is in excess of $5,000, a qualified appraisal of the donated property must be obtained.
2. Meet the reporting requirements. If you have made a gift of property in excess of $500 you must file Form 8283. Additionally, if you have made a gift of property in excess of $5,000 (other than publicly traded securities) you must complete the appraisal summary on Form 8283, Section B and have the charity complete and sign Part IV of such section. If the gift of property is in excess of $500,000, the qualified appraisal must be attached to your income tax return.
3. Understand the adjusted gross income percentage limitations. Charitable contributions for any given year are only deductible up to a certain percentage of your adjusted gross income for the year in which the contribution is made (20 percent to 50 percent depending on the type of property contributed and the type of organization that is the recipient). To the extent the entire amount of the contribution is not used in the year of contribution, you may carry over the excess amount for the succeeding five years.
4. Understand the timing rules. Contributions made by check are considered delivered on the date they are mailed and must be deducted in the year in which the mailing date occurs. Contributions made by credit card are considered made on the date of the charge and must be deducted in the year that the charge occurs. Pledges to make a contribution are generally not deductible until payment is actually made. Similarly, a contribution of an unsecured promissory note is not deductible until paid.
5. Confirm that the organization is a qualified organization. The IRS website (www.irs.gov) contains Publication 78, which is an annual cumulative list of most organizations that are qualified to receive deductible contributions. Note, many churches, synagogues, temples, mosques and government organizations are not required to be on the list; however, they are still qualified organizations. Political organizations (organizations that participate in political campaigns or attempt to influence legislation) are not qualified organizations.
6. Know the rules for pledges. Pledges to make a contribution are generally not deductible until payment is actually made. Do not let your private foundation satisfy a pledge that you made individually, as this is a prohibited act of self-dealing that may be subject to penalties.
7. Do not deduct the full amount with respect to contributions to university athletic foundations. If a donation is made to a college and university for the right to purchase seating at athletic events, only 80 percent of the payment is treated as a charitable contribution. The actual ticket purchase price is not deductible.
8. Do not deduct contributions of services or use of property. No deduction is allowed for the performance of services for a charity (e.g., artistic performance, professional services, etc.) or for the value of permitting a charity to use your property. However, you may deduct mileage and out-of-pocket expenses paid in providing services to a charity.
9. Do not deduct the cost of raffle tickets, lottery tickets or bingo.
10. Beware of tickets to fundraising events. When purchasing tickets to a fundraising event, you must reduce the charitable contribution by the value of the event. Sometimes, the charity will provide you with the value of the event to be used for this purpose. If the organization lists the full ticket price (unreduced by the value of the event) as a contribution, you must still reduce the deduction by the value of the event. If your private foundation buys a ticket to a fundraising event make sure that you or a “disqualified person” do not use the ticket to attend the fundraising event as this is a prohibited act of self-dealing (even if you pay for the non-charitable portion).
“Of course, we all generally give for truly charitable reasons, but there is no reason not to take advantage of the tax rewards the government gives us for being charitably inclined,” said John Messer, a tax partner in Grant Thornton’s South Florida Offices. “Just mind the rules and reap the benefits.”
source: www.GrantThornton.com.
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