It’s the end of the year and the holiday season with its spirit of generosity and goodwill is quickly approaching. This is also the time of year to think about tax planning and ways to reduce this year’s tax bill.
Here are a few things to keep in mind regarding charitable donations:
• Cash and property contributions of more than $250 requires a written acknowledgment from the charity. Donations of $500 or more requires, in addition to the written acknowledgment, a more detailed description such as the cost of each item donated and estimated fair market values of these items.
• Any item donated with a value of more than $5,000 will need an appraisal. The cost of the appraisal is tax-deductible.
• Cash donated without a written acknowledgment from the organization or proof such as a cancelled check cannot be deducted on your tax return! The cash you put in the collection plate at church is not deductible since there’s no proof of how much you donated.
• Donating stocks that have increased in value is another good way of being charitable. You can take the fair market value of the shares donated as a charitable tax deduction. Since you didn’t sell the shares, you won’t be taxed on the capital gain. If the stock has decreased in value, sell the stock first and then donate the proceeds. This way you get to report the loss on your return.
• Any value you receive from the organization in return for you donation will reduce the deduction you can claim on your return. If you pay $200 to attend a charity event where the dinner you receive is a worth $50, you can only claim $150 as a donation to the charity.
Finally, for donations to qualify as tax deductions, they have to be donated to qualifying nonprofit organizations and charities. Helping a family member or a friend who is down on his luck or a neighbor whose house burned down in a fire are wonderful acts of generosity and kindness, but, unfortunately, you can’t deduct these types of donations on your tax return.
Go and be charitable, keep your receipts, and Happy Holidays!
Allen & Company, PC - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta. Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses. Extensive experience working with franchised restaurants and other franchised businesses.