‘Tis the season for lots of year-end requests from nonprofit organizations. And the holiday season has many of us feeling grateful and generous. As you field all the letters, emails and phone calls, be sure to keep track of what you give. If your giving outweighs your standard income tax deduction, you will want to correctly deduct your year-end charitable giving. But during this busy time of year, with increased mail, you may misplace or forget things. Follow these guidelines for less stress at tax time.
Donating Cash Assets
Donating by cash, check or credit or debit card is the easiest way to donate and usually to record. Record the name of the charity, the date of donation and the contribution amount. The organization should automatically send you a receipt letter. You can also use a bank statement or credit card statement to prove date and amount for donations under $250. However, keep in mind that sometimes the recipient name may not appear properly on your statements.
Donating Non-Cash Assets
Many donations come in the form of non-cash assets, such as art, furniture, clothing, technology, automobiles, and property. You’ve donated your used car to your local NPR affiliate or donated that coat you never wear to The Salvation Army. For high-value items like cars, the organization will provide you a receipt. For smaller things, you will need to figure out the value yourself.
The IRS likes to see donation claims of “fair market value.” That means you can claim your donations of depreciated assets at anywhere from 1% to 30% of their original price. You can do usually appraise this yourself, as long as you’re honest and accurate. Use The Salvation Army’s donation value guide as a reference. To appraise “fair market value,” you can also use the willing-buyer-willing-seller test to appraise. Check out what other sellers are asking for similar items at a thrift store, on e-bay, or on Craigslist.
Showing proof of asset donations is typically more difficult than for cash donations. Use this checklist of what you should keep for your records for the different ranges of fair market value:
- Less than $500: (1) receipt and (2) the charity’s letter or other written confirmation showing their name, date, and location of donation and donation description
- $500 to $4,999: (1) same as above plus (2) documentation detailing the date and reason why you came into ownership of the donated property (purchased, inherited, gifted) and (3) tax basis for the asset
- More than $5,000: (1) everything previously listed and (2) a written appraisal of the property from a qualified appraiser
Keep reliable (detailed, accurate and consistent) records of your donations. Keep all donation records and receipts all in one place and report to the dollar. Here are a few ways you can track your year-end donations:
A lot of us are still not comfortable with using technology. If you’re one of those people, place all receipts, donation photos or other documentation into one donations folder. We also suggest a tracking sheet in which you can record the nonprofit, their cause, your donation, your donation value and the date.
If you don’t mind or live by technology, many options are available to you for tracking your charitable giving. General documentation programs like Evernote or OneNote possess features for scanning, importing and storing receipts, photos, and other files. They upload this documentation into a searchable, organized database that you can easily access when you fill out your taxes returns.
However, other tools were created specifically for tracking your charitable donations. All of the following apps are free:
Choose only exempt organizations if you’re looking to write off your donations for taxes. To find out which ones qualify, the nonprofit can tell you, and the IRS provides a checklist of requirements. An accountant or attorney can help you establish an appropriate system for recordkeeping.