In 2013 and beyond, if your AGI is more than $300,000 married filing jointly your itemized deductions will likely be reduced by the lesser of 3% of your AGI above $300,000, or by 80% of the amount of the itemized deductions otherwise allowable for the taxable year. With the reinstatement of the Pease Limitations for couples with AGI above $300,000 ($250,000 for single filers), the wealthy can say goodbye to past full benefits received for charitable contributions, mortgage interest, state, local and property taxes and miscellaneous itemized deductions. With the higher AGI thresholds, a couple with an AGI of $500,000 and itemized deductions of $29,500 should see their itemized deductions reduced by $6,000. Since this couple is in the 39.6% federal tax bracket, and assuming 6% state tax, this will cost them $2,736 in real dollars. The reductions do not apply to medical expenses, investment interest, non-business casualty losses or gambling losses.
Regardless, it is still imperative for taxpayers to obtain proof of any cash charitable contribution claimed on Schedule A: Itemized Deductions.
For cash contributions of any amount, you must have either a bank record that supports your donation or a written receipt from the charity that shows the name of the receiving organization, date and the amount of the contribution. Written acknowledgement may be in the form of a letter or email.
This is important, as this is where taxpayers are likely to short-change themselves. If you’re placing a few bills in your church’s collection plate each week and not getting a receipt, you are potentially missing out on this deduction. You can solve this by writing a check because the image of both sides of your cancelled check that you can download from your bank’s website serves as the bank record that will substantiate that deduction.
If you are donating more than $250 to any one organization in one day, you must obtain written acknowledgement of the donation that includes both the name and address of the organization. Your cancelled check will not be considered sufficient proof by the IRS in this scenario. The written acknowledgement must also contain a statement of whether you received any goods or services for the donation. In that case, the documentation would include a good faith estimate of the value of the goods or services you received. If you purchased a $300 ticket to a charity gala, the charity must disclose the value of the ticket. In this case, your deduction is the net amount—the donation, minus the value of the ticket to the gala.
Now, you may wonder if you start writing a check to your church every month for $100, what happens at the end of the year when you’ve donated $1,200. You’re in luck, because the IRS views each donation as a separate contribution, regardless of whether your total contribution exceeds the $250 substantiation limit. So even though you gave $1,200 during the year, you should not need any other documentation from your church.
For property donations less than $250, you need to have written records of the items you donated. If you are dropping items off at Goodwill or at a local charitable organization, you will likely be able to get a receipt. However, if you are dropping items off at a donation bin, you cannot always get a receipt. In this case, you should have good written records of what was given, the value, and the date of the donation.
For property donations between $250 and $500, you will need to have a written acknowledgment from the charity. Like cash donations, the letter needs to state if you received any goods or services in exchange for your donation, and what the value of the services or goods you received. If you did not receive anything in return the acknowledgement letter should state so.
When property donations are from $500 to $5,000, you need to supply additional information as how you received the property and your cost basis in the property. However, if you are donating common stocks, held more than one year, there is generally no need to show cost or adjusted basis. You must also complete Section A on Form 8283, Noncash Charitable Contributions as part of your tax return.
If you were to donate property worth more than $5,000, you will need an appraisal of the property and you must complete Section B of Form 8283 with your return. You do not need an appraisal for publically traded securities. When you are substantiating such a significant charitable contribution, it is better to work with a C.P.A. to make sure you are meeting the IRS requirements.
At Henssler Financial we believe you should Live Ready, which includes taking advantage of the tax deductions for your charitable contributions. If you have questions regarding how to substantiate your charitable contributions on your return, the tax experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at email@example.com.