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7
Tips For Deducting Charitable Contributions From Your Income
By
Chintamani Abhyankar
The IRS has laid down several conditions for
claiming charitable contributions as deductions. If you neglect conditions
specified by IRS, it can result in under-payment of tax and consequently
in fines, penalties and tax audit. Pay attention to the following points
while claiming deductions for charitable contributions:
- You can claim charitable contributions as deduction if you take the
option of itemizing your tax deductions. So people going for standard
deduction cannot claim these contributions.
- You must make your contribution to an organization which holds a
tax-exempt status. Usually the charities will inform you whether they
have a tax exempt status under 501(c)(3).
- You must keep appropriate records to claim the amount of the
contribution you made during the year. These include bank statements,
canceled checks, credit card statements, the receipts from the qualified
organizations and a pay stub if you make a contribution by payroll
deduction. For cash contributions, you must have such a record
irrespective of the amount of contribution.
- You should know about the overall limits for making charitable
contributions during a year. There is an overall limit of 50 per cent on
all the charitable contributions you made during the year.
- If you receive any benefit from the contribution you made, you have
to reduce the amount of contribution by fair market value of this
benefit. So if you pay $100 to attend a lunch organized by a church and
if the fair market value of such lunch is $25, then you can deduct only
$75 as you are charitable contribution.
- If your non cash contributions exceed $500, you must attach Form
8283 with your return of income. If your non cash contributions exceed
$5000, you must get an appraisal of the property in writing to decide on
the fair market value of the property.
- If you hold an IRA and have reached the age of 70 ½, you can make a
contribution up to $100,000 out of your IRA. Such a contribution can
count for your required minimum distribution (RMD) and not included in
the taxable income also. If you want your income should not get affected
by the distribution, this is a preferred alternative. This money cannot
go to public charities which are supporting other public charities. The
money cannot go to donor- advised funds also. You are not allowed to
receive anything in return for making such donation.
Chintamani Abhyankar is internet marketer, tax professional and
freelance writer. He has done a lot of research on tax systems and is
advising people internationally on various aspects of tax planning over
last 25 years.
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