Tips for Maximizing your Charitable Deduction

Charitable Giving is on the Rise – Tips for Maximizing your Charitable Deduction by Giving Personal or Business Items on Hand.

According to the Lilly Family School of Philanthropy at Indiana University, charitable contributions have finally eclipsed their pre-recession record high with Americans donating an estimated $358 billion to charitable organizations in 2014, compared to $355 billion donated in 2007. Last year also marked the fifth straight year of growth in total charitable giving with an average increase of 3.4% adjusted for inflation. Other findings in the this report include an increase in individual giving up 5.7% over 2013, Foundation charitable donations up 6.5%, bequest going up 13.6%, and corporate philanthropy increased 11.9% over 2013 totals.

As charitable giving has increased you might start looking to get into the giving act yourself. This summer as you do some cleaning out around the house and come across items you might want to donate, here are some tips to make sure you are able to claim your full charitable deduction.

Non-cash contributions for individuals require a certain level of record keeping depending on the amount of your deduction. You are permitted to deduct the fair market value of the items you donate. It is the responsibility of the donor to determine (estimate) the value of their donated items. The organization that received the donated item may provide you a receipt for the items donated, but any value assigned by the organization is NOT taken into consideration by the IRS for purposes of substantiating a charitable deduction (unless the organization immediately turns around and sells the item donated, such as with automobiles which have their own special reporting rules that organizations must follow).

1. For less than $250 in deductions, a receipt from the charitable organization stating the name of the charitable organization, the date of the donation, and a description of the property will suffice. It is understood, however, that receipts can sometimes be impractical to obtain, such as dropping a donation off to a charitable organization’s unattended drop site.

2. For deductions of at least $250 but less than $500, you must keep a receipt of your contribution from the charitable organization. If there is more than one contribution of $250 or more you must either keep separate documentation of both contributions, or have a combined receipt that shows your total contributions.

3. For deductions of at least $500 but less than $5000, you must have the same level of documentation as # 2, but must also include Form 8283 with your individual return. This form asks additional questions, such as a description of the donated item(s), how the property was acquired (purchased, gift, bequest, inheritance or exchange), the approximate date of when the property was acquired, and finally, the cost of the property (purchase price).

4. Finally for deductions over $5,000, the previous level of documentation and receipts must be met and a written appraisal of the donated property from a qualified appraiser must be provided to the IRS with your individual tax return. NOTE: a written appraisal would not be required when the non-cash donation is of an item such as publically traded stocks, whose value can be readily determined without an appraisal.

Businesses contributing inventory

For businesses looking to donate inventory, there are a few rules to keep in mind when taking a charitable contribution. First the deduction amount that can be claimed must be the lesser of fair market value or its cost basis (the cost to acquire the inventory). If the purchase of inventory was made in a prior year, use the cost carried to your opening inventory to determine the cost basis. The amount of donated inventory must then be deducted from your opening inventory, as it will not be included in the cost of goods sold.

For more information, or to plan ways to maximize your deductions, contact Jim Wagoner at 317-260-4428 or jwagoner@greenwaltcpas.com