People give contributions to charitable institutions simply because of the good feeling that naturally comes with the act of helping someone. Doing so will also qualify them to tax deductions as these donations are considered non-taxable. If the IRS sees entries like this in your tax return, it will always take notice. As of January 1, 2007, the IRS presents new procedures that are stricter and that require more documentation as compared to the previous years. This limitation, however, didn't keep people from making more contributions because in the end, helping others is worth anything else.
For every dollar that you contribute, you are given a tax benefit that is equivalent to your marginal tax bracket. For example, you can save up to $250 if you are in the 25% tax level bracket and you donated $1,000. Likewise, if you're in the 35% tax bracket and you donate $1,000, you will be saving $350 in tax. So the actual cost of your donation ends up being only $650. There is a limit to the amount of savings you can get though. This is particularly true if your total donations add up to more than 20% of your AGI (adjusted gross income) in a given year. What kind and how high are these limits? It depends. Just be aware that the rules will get complicated and ambiguous, worse, it could even cause your tax return to be flagged by the IRS.
In some cases, you get to contribute a very large amount of money to a fully accredited non-profit organization because you did not spend much of your $100,000 AGI. In this example, you would be limited to only a 50% deduction of your AGI, which is equal to to $50,000.
This is only applicable when you are giving contributions to fully accredited institutions, but what about everything else? You're not permitted to deduct any donations you made to specific individuals who were in need or who simply asked for your help. Conversely, you can translate into deductions the value of your time and effort spent in volunteering for charitable works.
One tip that many smart givers know and use is that they never sell their stocks and simply donate the cash. They do this specifically when they can give out stocks that have appreciated as doing so will make them qualified to a deduction equivalent to the earned appreciation. The truth is, you can actually deduct the full market price of your stocks and not pay taxes on the appreciation if you have owned these for over a single year. Hypothetically, if you bought 1,000 shares of common stock in a corporation two years ago at $14 each, and on today's market it's actually worth $20 per share, if you donated the actual shares of stock to charity, then you could subtract the entire $20,000 and not pay taxes on the gained $6,000.
If you donate old equipment, furniture, and clothes to charitable institutions, you can also get deductions equivalent to the fair market value of those things. As per the Pension Protection Act of 2006, however, deductions are only authorized when household items given are in good or better condition. Just be sure to meet this requirement in spite of the fact that the term "good" was not operationally defined. Doing so will help you avoid getting an audit, or an IRS problem altogether.
Darrin T. Mish (http://www.getirshelp.com) is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He teaches attorneys, CPAs and Enrolled Agents in the finer aspects of IRS representation all around the United States. He can be reached at his website at http://www.getIRShelp.com
