If you've made donations or have contributed to a charity throughout the previous year, you will need to fill out a charitable contributions form for any non-cash charitable giving. This is known as Form 8283. However, it's important to understand how you need to deduct charitable giving, and when it's really necessary to use this form.
Itemizing Charitable Donations
When you or your CPA completes your taxes this year, it's important to understand how charitable giving is deducted from taxes, and when it's necessary to use the 8283 form for non-cash giving.
Cash Charitable Giving
Whenever you donate a significant amount of money throughout the year to non-profit charitable organizations, it's always a good idea to itemize your tax deductions. While most people usually don't have enough items to deduct in order to make itemizing beneficial, people who donate significantly to charity often find that they do. Since you can only deduct those contributions if you itemize, it's important that fill out a Schedule A for itemized deductions.
There are two major categories of contributions, either cash or non-cash. People who have a certain amount deducted from their paycheck for the United Way for example, can simply enter in that amount on line 16 of Schedule A. Keep in mind that even if you only donated your services, any out of pocket costs that you incurred in the process of doing so can be deducted as a cash contribution, such as mileage on your car, gasoline, and any donated food or supplies.
Use the following guidelines to deduct cash charitable contributions.
- Keep all bank records or receipt from charities as evidence of your cash contributions.
- Subtract the value of any benefit you received for your donation (such as coupons or t-shirts).
- The total of your cash donations goes on line 16 of the Schedule A form for Itemized Deductions.
- Remember that sometimes it can be beneficial to carry over contributions to the next year.
Non-Cash Charitable Giving
Non-cash donations, such as when you donate property or vehicles, are handled a little differently than cash donations. First, calculate the value of the goods you donated throughout the year. Usually, this is as simple as determining the fair market value of the donated items. If the total value of the items you donated is under $500, then you can just enter that value on line 17 of the Schedule A form. However, if you donated more than $500 worth of items, then you need to fill out the charitable contributions federal deduction tax form, which is the 8283 form with the title "Noncash Charitable Contributions."
Use the following guidelines to deduct non-cash charitable contributions.
- Calculate fair market value of any clothing, goods, furniture or any other items you donated.
- If the total amounts to more than $500, fill out Form 8283.
- For vehicles the charity sells, you need to use either the fair market value or the actual sale proceeds, whichever is less.
- You should receive a 1098-C from the charity for any vehicles you've donated.
- All totals go on line 17 of the Schedule A form for itemized contributions.
Limits and Guidelines
Tax deductions for charitable giving are intended to ease the pain for people who may want to donate to worthy non-profit causes, but feel that they can't afford it. These tax deductions can greatly reduce that burden, making it possible for people who otherwise couldn't afford it to donate to charities and causes that they believe in. Unfortunately, there are also people who also use these deductions as a method to evade paying taxes by establishing fraudulent non-profit organizations, attempting to deduct donated products or services that don't qualify, or otherwise attempting to scam the tax system.
For this reason, the IRS requires all donations be supported with bank records or receipts from the non-profit proving the value of the donation. Additionally, the tax deduction for your charitable giving is limited to half of your adjusted gross income. If you've donated a significant amount of cash or non-cash contributions to one or more non-profits throughout the previous year, considering rolling over some so that you can still take advantage of the tax benefits the following year.
Benefits of Donating
It feels good to give to charitable causes, but it's certainly nice that the federal government rewards citizens who are generous with their donations. Donating to a non-profit organization allows you to choose where your money goes in order to improve communities and society as a whole. While most people simply pay taxes and let the government choose where the money should be spent, people who donate significantly to charities take a more active role in deciding where money should be invested in their communities. For their efforts, they can enjoy the added benefit of paying less on taxes.
If you are considering taking advantage of the charitable donations tax deduction, be sure to talk to a certified tax preparer in order to discuss your specific circumstances and what sort of tax preparation would work best for your situation.