How to Deduct Charitable Contributions

Americans from all socioeconomic groups are among the most generous people in the world. Tax law allows a deduction for charitable donations if you can itemize deductions.

Instructions

Difficulty: Moderately Easy

Records

1. Determine whether your total itemized deductions will come close to or exceed the standard deduction for your filing status.
2. Keep ongoing records of cash and noncash charitable contributions made throughout the year if there is a possibility that you can itemize.
3. Use canceled checks, receipts or written records for cash or noncash donations of less than $250 in one day. You need an acknowledgement letter from the charity for donations of $250 or more and a written appraisal for noncash donations worth more than $5,000.
4. Maintain a log of miles driven for any volunteer actions.

Monetary Contributions

5. Add up all contributions made by check, money order, electronic transfer or credit card to qualified nonprofit and religious organizations.
6. Include money donations for which you have receipts or adequate records - your sponsorships of jog-a-thons and read-a-thons; your cash contributions to church, synagogue or mosque.
7. Include the portion of ticket prices for charity-sponsored events that exceeds the value of the goods or services received. For example, if you paid $100 for a dinner and the cost of the dinner was $25, you may deduct $75.
8. Include your donation to the United Way made by automatic payroll deduction. Your W-2 or year-end pay stub will have the total.
9. Add up the cost of goods and supplies you purchased for charitable organizations in the course of volunteer work. Disregard any for which you were or could have been reimbursed.
10. Add up the number of miles driven to, from and during volunteer work. Multiply total mileage by the allowable rate, 14 cents per mile for 1999, and use that amount as a contribution.
11. Total these figures to obtain the amount to deduct on Schedule A of your tax return on the line, "Gifts by cash or check."

Contributions of Goods

12. Obtain and save receipts for all donations to charitable organizations of goods you owned.
13. Determine the fair market value of the donated property - the amount for which the goods would be resold. For donations to thrift stores, use your estimate of the store's resell price.
14. Determine which is lower: your basis - usually the amount you paid when you bought the goods - or their resale value. You will use the lower amount as your charitable tax deduction.
15. Fill out IRS Form 8283 if your total contribution of goods is worth $500 or more. Include on the form the names and addresses of the charities; the dates of contribution; the dates of acquisition; your basis - generally, the price you paid for the goods; how you obtained the goods; and the resale value of the goods.
16. Add up the allowable deduction for contributions of goods and deduct on Schedule A of your tax return on the line, "Other than by cash or check."

Tips & Warnings

• It is easy to forget donations made throughout the year. Obtain and place in a labeled file folder your cancelled checks, receipts, credit card bills and electronic transfer notices for your contributions, as well as acknowledgements of donations of $250 or more.
• Legislators are considering an amendment of tax law to allow all taxpayers to take the charitable deduction whether or not they itemize. Since tax law changes are often retroactive, keep records of donations beginning at the start of the year 2000.
• When contributing goods, keep a written inventory that includes a description and fair market value of the goods: five dress shirts - $25; 10 paperback books - $10. Staple your list to the receipt obtained when the goods are dropped off or picked up.
• You can calculate the fair market value of goods by going to thrift stores or garage sales or by using charts put out annually by firms such as TMI Tax Services in its "Quickfinder Handbook." A tax preparer may be able to give you a copy of a chart.
• Donations of used vehicles are being scrutinized by the IRS on two levels. First, you may only take as a deduction the fair market value (or your investment in the vehicle, if that is lower) and not the Blue Book value, as is often advertised. Second, the IRS may deny the deduction when a clearinghouse handles your donation. These businesses often pay the charity a fixed sum per year that is not based on the value of the donations, which, in the view of the IRS, violates the letter and spirit of the law.
• Consult with an experienced tax preparer if you have questions or if your situation is out of the ordinary ' for example, if the property you have donated has increased in value, if you receive something in exchange for your contribution, if you retain some interest in the property you donate, or if you have a charitable trust.