Charitable contribution tax deduction
The charitable contribution tax deduction can help you help others. There are several important tax provisions that have taken effect in recent years. This will be a two part post to give enough details on each deduction.
Special Tax-Free Charitable Distributions
This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Thus, this a good option for people that want tax savings but don’t have enough deductions to benefit from itemized deductions. Just remember that distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income – resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount. Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.
Charitable Contributions Rules
You may already know that charitable contributions of clothing and household items are tax deductible. But, most people are surprised to find that the amount of the tax deduction is not as much as they anticipated. To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. If the taxpayer claims a deduction of over $500 and includes a qualified appraisal for the clothing or household item and the amount then you do not need to meet this standard. Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.
Please check out part 2 on Charitable contribution tax deduction.