As the end of the year approaches, we wanted to remind you of the continuing rules and new law provisions that have taken effect in recent years when making your charitable contribution donations.
Special Charitable Contributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to donate to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts that are transferred are not taxable and no deduction is available for the transfer. Not all charities are eligible. Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. As a reminder, for tax year 2009, there is no required minimum distribution.
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens. You should receive a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation of $250 or more. However, one statement containing all of the required information may meet both requirements.
Charitable contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter. For individuals, only taxpayers who itemize their deductions can claim deductions for charitable contributions. A taxpayer will have a tax savings only if the total itemized deductions exceed the standard deduction.
We hope this information is helpful. If you would like more details about the deductibility of your charitable giving, please call our offices at (215) 665-3960 and ask to speak to one of our shareholders or email us at info@taxwarriors.com .