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Charitable Contributions
by Thomas L. Kearns
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Thomas L. Kearns
Certified Public Accountant
1550 Los Padres Blvd.
Santa Clara, CA 95050-4497
(408) 247-1177
(408) 247-9463 (fax)
The following article was written by Thomas Kearns in response to reader questions about donations to the Computing EDGE program. Please consult your personal accountant or tax preparer for questions relating to your particular tax situation.
Taxpayers who itemize, using Form 1040, Schedule A, are allowed a tax deduction for charitable contributions made during the tax year. This applies to both cash and non cash contributions. The contribution must be made to a recipient which is eligible to receive deductible contributions. The recipient may be religious, charitable, educational, governmental or other philanthropic organizations. If you need to verify the eligibility of the organization, the Internal Revenue Service can provide you with Publication 78 which lists acceptable organizations. IRS Publication 526, Charitable Contributions, should also be referred to for additional information.
All contributions of $250 or more must be substantiated by written acknowledgment from the organization receiving the contribution. The acknowledgment must state the amount of money or description of property and whether any consideration was qiven in exchange for the contribution.
If your non cash contribution is valued at $500 or more, you must complete and attach Form 8283, Noncash Charitable Contributions. For property with a value of $5,000 or more the donor will, in most situations, have to obtain a qualified appraisal to substantiate the value of the property. Publicly traded stock is one of the few exceptions to the qualified appraisal.
Record keeping: Taxpayers deducting contributions on their tax returns should also keep a receipt from the organization or a reliable written statement that shows the organization's name and address. Your written records should include:
- The method used to determine the property's value at the time you
contributed the property. Copies of comparable sales prices or other documentation should also be retained in your tax records.
- The cost or other basis of the property, if you must reduce the
cost, by any ordinary income or capital gain that would have
resulted if the property had been sold at its fair market value.
- How you determined your deduction if you chose to reduce your
deduction for gifts of capital gain property.
- Any conditions attached to the gift.
Limitations:
- No deduction is allowed for the value of benefits received from the
qualified orqanization.
- If the property contributed has a fair market value that is less
than your basis in the property, your deduction is limited to fair
market value. You cannot claim a deduction for the difference
between the property's basis and its fair market value.
- Property which has appreciated--Please contact your tax preparer.
- If your contributions are more than 20% of your adjusted gross
income, the amount of your contribution may be limited to either
20%, 30%, or 50% of your adjusted gross income, depending on the
type of property you give and the type of organization you give
the property to.
- If your contributions are more than the applicable limits, you
can carry over your contributions that you are not able to deduct
in the current year, to a future year. You can deduct the excess
contributions in each of the 5 succeeding years until the excess
has been used up, but not beyond the 5 years.
Example: Personal computer and related software with a purchase price of $3,000, valued at $500 at time of contribution, receives a $500 deduction on Schedule A. A written receipt must be received and Form 8283 should be attached to your return.
Example: Business computer system, original purchase price $100,000, current value $10,000, adjusted tax basis of $15,000, receives a deduction of $10,000. A written receipt must be received and Form 8283 should be attached to your return. Since the value is over $5,000, an appraisal is required and should be made part of your tax records.
The above is a brief summary of the rules surrounding contributions of property. Please contact your tax advisor if you have any questions.
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