We are down to the wire with only a few days left in the year to qualify for tax deductions that can lower your 2010 tax bill. Perhaps, one of the easiest ways to claim a tax deduction is to donate to charity. Everyone can donate, from first time tax filers to those over the age of 70 1/2 holding an IRA.
Donating an IRA
Those over the age of 70 1/2 can still donate up to $100,000 to charities with funds from their IRA. The tax-free transfer allows those folks to reduce their taxable income and thus their year end tax bill. In case you forgot, IRA holders 70 1/2 or older, are required to make minimum distributions (RMDs) and this charitable donation would fulfill that requirement. This transfer doesn’t however allow them to take a tax deduction for the contribution but it could fulfill a requirement to tithe (support your church). Keep in mind that $100,000 is the limit, you could donate $5,000 from your IRA.
Everyone Else
There is still time to donate clothing & furniture as well as other items to section 501(c) organizations as deemed by the IRS. These types of organizations are non-profits such as Goodwill. If donating to Goodwill or another 501(c) organization, make sure you consider these tax tips:
- Keep Supporting Documentation. This includes a receipt from the charitable organization detailing the name of the organization, the date, the amount of the contribution and description – if it is property. Also keep any bank or credit card statements that also validate the contribution (IRS Publication 526).
- Itemize to Claim the Deduction. If you want to claim the donation as a tax deduction, you must itemize. You cannot take the standard deduction.
- Maximum Tax Deduction for Contribution – 50% of AGI. Generally, you cannot claim a charitable deduction if your total tax deductions for charitable contributions for the year is over 50% of your adjusted gross income (AGI).
- Contributing Property Can Get Complicated. If there is a capital gain associated with the Fair Market Value of the contributed property, you could only contribute up to 30% of your AGI unless you choose to reduce the gain associated with the FMV of the property. In some instances, you may not be able to contribute more than 20% of AGI. These types of scenarios can get complicated so be sure to consult with a tax consultant if you are in this situation.
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