Sunday, February 2, 2014

Tax Deductions – Charitable Contributions

Tax Deductions – Charitable Contributions

In our series on Tax Deductions, we would like to highlight some of the salient points that should be noted while claiming tax deductions on account of Charitable Contributions.
  • Charitable contributions are deductible only if you itemize deductions on Form 1040, Schedule A.
  • Charitable contributions made only to qualified organizations are tax deductible. To verify if the contribution that you made is tax deductible or not, you can enter the name of the organization in this link Exempt Organization Check to check if it is a qualified organization.
  •  A receipt is needed for any donation claimed as deduction in Schedule A even if it is a dollar. Your deduction for charitable contributions is generally limited to 50% of your adjusted gross income, but in some cases 20% and 30% limits may apply
  • Political Contributions are not tax deductible. Clothing or food given directly to victims is not deductible; the items must be given through a charity.
  • For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution. In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations.
  • For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. 
  • Other common donations are property or out-of-pocket expenses paid to do volunteer work. If transportation costs to perform the volunteer work are incurred, the actual cost of gas and oil or the standard rate of 14 cents a mile can be deducted. Add parking and tolls to the amount claimed for either method. Clothing and household items are deductible at its current value, whereas food items are deductible at cost. 
  • For non-cash contributions greater than $500 there are additional forms that need to be filled out. Pl consult your tax consultant or CPA.

This article is collated by Prakash Iyer CPA, President, VXL SERVICES INC., a Tax Planning and Tax Return Preparation Company based in New Jersey. You can reach him at (732) 983 - 4150 or at prakash@vxlservices.com.

VXL is recognized for providing comprehensive tax advice to Individuals and Businesses across US. This includes filing Federal and State Tax returns including Resident and Non Resident Individual Tax returns, Business Tax returns, ITIN application and filing Amended tax returns. You can visit us as www.vxlservices.com