Are you prepared to donate to charity this year? Do you wonder how your charitable contributions are to be treated on your tax return? Perhaps you wonder what kinds of contributions are tax-deductible.
If you want to get your taxes done right, it’s important that you understand the difference between cash contributions and non-cash contributions. For tax purposes, you’ll need to classify contributions the right way and know the difference between cash and property, as it may affect your giving this year.
Understanding the rules for cash contributions and those that are given as property will help you get your taxes done the correct way. You can also work with a qualified tax professional – someone who knows how to properly classify your charitable contributions.
What is a Cash Contribution?
A cash contribution is any charitable contribution made of cash, check, electronic funds transfer (EFT), credit card, debit card, or that made from a payroll deduction. In general, you are not permitted to deduct a cash contribution on your annual tax return.
According to IRS Publication 526: Charitable Contributions, you’ll need the right documentation to substantiate your charitable contributions. Cash contributions can include the right bank records, qualified receipts, or records showing your payroll deductions.
What is a Non-Cash Contribution?
A non-cash contribution is a contribution not made in cash. This could include property, goods, services, and other non-cash items.
For non-cash contributions, such as property, you will need to have the right documentation for your annual tax return.
You will need to know how much your charitable deduction is worth. To determine this figure, you will want to consolidate any property you received with any property you gave, generally speaking.
Determine your charitable contribution amount by reducing your contribution by the fair market value of any goods and services that you have received during the tax year.
The documentation required by the IRS for non-cash contributions is dependent on how much your contribution is worth, so your first step should be figuring out the amount of your contribution. If you need assistance, it’s advised that you consult a tax professional.
Understanding the Rules for Non-Cash Contributions
What are the Rules for Non-Cash Contributions Less than $250?
What is a qualified charitable contribution? To deduct a non-cash charitable contribution on your tax return, you will need to have the right documentation. A receipt must include the name of the charitable organization you have donated to, the date and location of the contribution, and a detailed description of the property you have donated.
If you are unable to obtain a receipt from a charitable organization, as many do not have the funds to provide an official receipt, you can use a letter or written communication of some kind from the charitable organization stating the above information.
Along with the name of the organization, the date and location of the donation, and the description of the property, if your contribution is less than $250, you’ll need the fair market value of the property, the amount of appreciation in regards to the fair market value of the property, and any conditions attached to the donation.
For all non-cash contributions, you’ll want to have the name of the organization, the date and location of the donation, and a description of the non-cash donation. However, there are some additional considerations to be made for any non-cash contribution greater than $250.
What are the Rules for Non-Cash Contributions Less than $500?
For non-cash contributions that are at least $250 but less than $500, your documentation must be written. Also, you will need to get the written record on or earlier than the date you file your annual tax return or the due date of the tax return, including tax extensions.
What are the Rules for Non-Cash Contributions Over $500?
For non-cash contributions that are at least $500 but less than $5,000, your records must include how you obtained the non-cash property, the approximate date that you received the non-cash property, and the cost or other basis for the non-cash property, including any adjustments needed for the basis used to calculate the value of the property.
What are the Rules for Non-Cash Contributions Over $5,000?
For property donations over $5,000, you will want to have the above documentation and a written appraisal of the property you have donated from a qualified appraiser.
While obtaining an appraisal may seem to be an inconvenience, you will get tax breaks for donating contributions worth more than $5,000. Generally, the tax benefits received for non-cash contributions over $5,000 are greater than the cost of getting an appraisal for said property.
There are specific rules for any gift that could be classified as a qualified conservation contribution, as well.
How Does It Work for Out-of-Pocket Expenses?
There will possibly be cases when you have made a charitable contribution and incurred out-of-pocket expenses related to said contribution. In those cases, you will need to follow specific rules.
First, you must obtain proper records with the amount of your out-of-pocket expenses listed on those records.
Second, the charitable organization must provide you with a written acknowledgment stating whether you have received any goods or services from the organization in an attempt to reimburse you for the out-of-pocket expenses you incurred.
Finally, the said acknowledgment must be received on or before the date you filed your annual tax return or the due date of your annual tax return, including the due date of tax extensions.
For vehicle expenses related to the property donated to a charitable organization, you will need to keep detailed written records of any expenses you incurred. Read more about car expenses in IRS Publication 526: Charitable Contributions.
You should now have a clear idea of what kinds of contributions are tax-deductible. However, as you can see, the rules regarding non-cash contributions can be complicated or even tricky from time to time. Working with a qualified tax professional can help ease this burden.
A qualified tax expert can help you maximize your tax deductions and get you the best tax benefits that you are qualified to receive.
If you are looking for assistance in filing your tax return this year, be sure to reach out to Indiana’s tax expert – Sherry Borshoff. Borshoff Consulting is a full-service tax agency with the know-how to help with tax audits, tax returns, tax resolution, and much more!
Be sure to get a free tax consultation today to learn how we can best help you. Our business is aimed at keeping your taxes neat and accurate! Find out how we can improve your business or personal tax return today!