How to Get Tax Deductions for Cash Contributions

Everyone wants to save money on their taxes. No one wants to pay Uncle Sam more than is absolutely necessary. One of the best ways to do this is to be able to take deductions on your tax return. This lowers your taxable income, which is the amount used to determine how much you should pay in federal taxes. One way to get a deduction on your taxes is with cash contributions made to charitable organizations and the like. This article will explore how your cash contributions can qualify for a deduction, and where to fill out this information on your tax return.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Federal Tax Form 1040
• Federal Tax Form 1040 Schedule A
• Cash contribution made to qualifying place
• Adequate records kept of cash contribution
• Itemize deductions on your tax return

How to Qualify for Deduction on Cash Contributions

1. Use Federal Tax Form 1040 or 1040NR. To be able to take a deduction for a cash contribution you make, you must be using Federal Tax Form 1040 or 1040NR. If you are going to use Form 1040EZ, for instance, you will not be able to take any deduction.

2. Itemize deductions on your federal tax form. Once you discover you'll be using Form 1040 or 1040NR, you must also itemize your deductions instead of taking the standard deduction. Look at Schedule A on the IRS website listed in the resources just to get an idea whether your deductions will exceed the standard deduction. If you have mortgage taxes and interest, this alone could make it worthwhile for you to itemize deductions.

3. Make cash contributions to qualified organizations. Qualified organizations fall under one of five categories. These are war veterans' organizations, domestic fraternal associations under the lodge system, some nonprofit cemetary companies, the federal government or state entity/ US possession, and corporations/foundations organized and operated for any of these purposes: religious, educational, scientific, literary, charitable, or for the prevention of cruelty to children or animals.

4. Make a cash contribution that is 'for the use of' a qualified organization. This means that your contribution cannot, for instance, be made to benefit a specific person.

5. Make a cash contribution in the form of check, cash, credit card, payroll deduction, or electronic funds transfer.

6. Keep adequate records. You must have a bank record such as a cancelled check or bank statement or a receipt from the organization showing the date, the organization's name, and the amount of the contribution. If your contribution is from a payroll deduction, you have to keep the pay stub or W2 and a pledge card from the organization with its name on it.

7. If your contribution is over $250, you must have acknowledgment from the organization. If you make ten separate cash contributions of $25 over 10 weeks, these count separately as $25 each and do not have to have this acknowledgment.

How To Fill Out Your Tax Form for Cash Contributions

8. Obtain Federal Tax Form 1040 and Schedule A.

9. Look on Schedule A for the section on Gifts to Charity. There should be a line that says Gifts by Cash or Check.

10. Write in the total amount of your cash contributions on this line.

11. Add up all of your gifts to charity, and then determine the amounts for the rest of your itemized deductions.

12. The total of your itemized deductions then goes onto Form 1040 on the line that says Itemized Deductions (from Schedule A) or your standard deduction. On the 2007 Tax Form 1040, this was line 40.

Tips & Warnings

• To find out if an organization is qualified to receive deductible cash contributions, just ask them. This will save you having to figure out yourself whether the organization qualifies. Churches, the Red Cross, public parks, nonprofit hospitals, nonprofit colleges, and nonprofit volunteer fire companies are all qualified organizations.
• If your cash contribution is to the US or a state, it must be made solely for public purposes to qualify.
• Keep in mind that there are limits to the deduction you can take for cash contributions. In general, your deduction for charitable contributions (cash and non-cash) is limited to 50 percent of your adjusted gross income. Look at the section on limitations of charitable contributions in Publication 526 on the IRS website. (Actually, some non-cash contributions have a 20 or 30 percent limit.)
• Only certain qualified organizations allow you to take up to the 50 percent AGI limit, such as churches, educational organizations with classes mostly on site, hospitals, and the US and the states. Refer once again to Publication 526.

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