Friday, December 13, 2013

What Holiday Spending Is Tax Deductible?

Helping out people in need is a great way to spend any day. It's especially great during the holidays when need can often be most apparent. The advantages to charitable giving are numerous, but one great perk to giving this year is the fact that some charitable gifts are tax-deductible and can provide some modicum of tax relief.
In order to claim the deduction you must ensure that you understand all the rules. Charitable contributions can reduce your overall tax burden this year, and you are doing so while performing a greater good. However, when it comes to tax law, you must be aware of the rules and procedures.
Here are a few tips to help you get the most out of your holiday buck:
  • When claiming charitable deductions, you must itemize first. You must report any itemized deductions on the Schedule A federal form 1040 lines 16-19.
  • Only the donations you make to qualified charities are deductible. To see whether a certain organization is qualified or not, ask to see their IRS letter stating they are recognized as a qualified charity. You can also search online through IRS Publication 78. Remember that temples, mosques, churches and synagogues are considered by the IRS to be de facto charities and are therefore eligible to receive donations.
  • Cash deductions, no matter the amount, has to be substantiated by bank records (via credit card receipt or canceled check) or in writing by the charity. The writing should include the amount, organization and the date they received the donation.
  • Any cash deductions which cannot be substantiated, like cash donations without receipts or donations made to individuals directly rather than to a qualified charity, will be disallowed. This includes paying for Christmas presents or being an anonymous donor. This doesn't mean you cannot do these types of random acts of kindness. It just means that you are not able to claim the deduction.
  • If your paycheck has funds taken out for charity, make sure that you keep your pay stubs, your W-2 or any other documents that are furnished by the employer that shows the amount withheld.
  • For non-cash item donations, the general rule is that a person can take deductions for the overall fair market value concerning those items - what that item would sell for. Be very specific when you are documenting your donations, noting each description and condition.
  • Donation rules for vehicles (including airplanes and boats) are slightly different. Rather than using fair market value, you are limited to gross proceeds from the sale if the value is $500 or more. Refer to form 1098-C and attach it when you send in your tax return.
Now that the holidays are right around the corner, charitable giving is needed more than ever. If you decide to give to charity, make sure you receive a little something back. For more tax relief help, contact your tax advisor.

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