Not everyone is able to itemize their deductions, but if you can, you'll probably pay less tax. Charitable contributions are one of the itemized deductions you need to keep track of and that's what I'd like to help you with today.
When you contribute to a charity, you help all of us and the IRS rewards you with a tax benefit. In order to deduct your contribution, the organization must be qualified as a "501(c)(3)" charity. This is a just a Section of the IRS Tax Code, but you'll usually see this on their website, or you can call and ask the organization. Churches, Red Cross, Gleaners Food Bank, Heart Association and the Humane Society are all common examples of qualified groups.
You must follow the IRS rules to claim your deduction so here are some tips on how to do it correctly:
1. You can give money to a charity. Pretty straight forward, but you must get a receipt from the organization with an amount, date and whether you received any goods/services in exchange for your donation. It's always better to use a credit card or check instead of pulling money out of your pocket.
2. You can give clothing or household goods to a charity. Most people really underestimate the tax benefit of this type of contribution! Two important rules: merchandise you donate must be in a usable condition and you are responsible to determine the value of your donation. I'll let your conscience decide on whether it's usable, but here's a great link to the Salvation Army Donation Value Guide so you can estimate value. The Guide has two prices: 'low' and 'high', but I usually use 'low' to be a little more conservative. When you call Purple Heart, Salvation Army, etc. to pick up your stuff, just make a list with three columns: type of item (i.e.'men's dress shirt'), how many, and total value. Staple this list to your donation receipt and put it in your tax file.
3. You can donate appreciated securities, art or vehicles. Not as common and much too complicated for today's blog. Just make sure you talk with a tax professional and do it correctly.
4. You can volunteer your time to help a charity. You can't deduct the value of your time, but you may get a deduction for mileage you drive and supplies you buy to help the charity. Again, get receipts.
There's also a great 50% tax credit on the Michigan return for contributions to specific groups, but 2011 is the last year so be sure to check it out. As you might expect, there are limits and additional details to be aware of so do your homework!
Following the IRS rules and keeping good records takes a little more work upfront, but you'll be much happier at tax time, and isn't that worth a lot?
DISCLOSURE: This article contains only general tax suggestions so you'll need to talk with your tax professional to decide the best approach which will apply to your specific situation.