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Q: I recently received a letter from an out-of-state charity that does work that I’m interested in supporting. Is there any way to check whether the charity is legitimate?
A: The Internal Revenue Service publishes a list of tax-exempt charities, Publication 78, on the IRS website at www.irs.gov (search: Publication 78). It also may be available at your local library. Keep in mind, however, that some charities (for example, churches and public charities with gross receipts less than $5,000) may be treated as tax-exempt without filing an application, and are not listed in Publication 78.
Q: Can I deduct contributions to foreign charities?
A: Federal law generally requires that, for a charitable contribution to be deductible, the receiving organization must have been created or organized under the laws of one of the states or possessions of the United States. However, this rule can be modified by treaty and has been modified by a treaty with Canada. Also, even if a donation is made to a charity formed in the United States, it may not be deductible if it is earmarked to be used in a foreign country.
Q: Must I get a receipt for small cash donations that I make to various local charitable fundraisers?
A: Under current law, you cannot rely on your own written records, such as a diary, to substantiate a charitable donation of cash. You need a bank record or receipt from the charity to substantiate any cash contributions. The receipt must indicate the name of the charity and the date and amount of the contribution.
For donations of $250 or more, you need to obtain and keep a contemporaneous written acknowledgment from the charity for the charitable contribution. To be contemporaneous, you must obtain it no later than the date that you file your income tax return for the year that the contribution is made. The acknowledgement must indicate the amount of cash and a description of any property contributed. The written acknowledgment must also state whether you received any goods or services in exchange for your contribution. If you did receive goods or services, the written acknowledgment must include a good-faith estimate of the value of those goods or services.
Q: How much can I deduct if I contribute clothing and household items to a charity?
A: A new law provides that you may only deduct the fair market value of clothing and household items that are in good used condition. You cannot deduct items that are in fair or poor condition. While the IRS now has the authority to prohibit deductions for any item with minimal monetary value, such as used socks or undergarments, it has not yet published any such prohibitions.
Q: How do I determine the fair market value of used clothing and household goods?
A: For used clothing and household items, the fair market value is the amount that such items could be sold for at a consignment or thrift store. Remember, it is your responsibility to determine the fair market value. You may need to do some research, but available software programs can assist you. Additionally, you may want to review IRS Publication 561, Determining the Value of Donated Property.
You should make an itemized list of items that you are donating. It is also wise to take pictures of the items to document your deduction. If you claim deductions for non-cash contributions totaling more than $500, you must submit a copy of IRS Form 8283, Non-cash Charitable Contributions, with your tax return.
Finally, a special rule applies to the donation of a single piece of clothing or household item for which a deduction of more than $500 is claimed. In this case, you must also submit a “qualified appraisal” of the item with your tax return. A qualified appraisal is one prepared by an individual holding special credentials as an appraiser.
Q: Can I make charitable donations directly from my IRA?
A: A law passed in August 2006 allows an individual who is age
70 ½ or older to contribute up to $100,000 directly to charities from an IRA, without having to treat the donation as taxable income. Although you may not take a deduction for the contribution, this is still a benefit to high-income taxpayers who often lose a portion of their tax deductions due to certain income phase-out rules. As an added benefit, the charitable donation counts toward the required minimum distribution that must be made to all IRA owners and beneficiaries age 70 ½ and older. This opportunity is available in 2011, but the law expires at the end of 2011, unless it is extended by Congress.
Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association. This article was prepared by Cleveland-area attorney Michael P. Coyne of Waldheger Coyne Co., LPA in Westlake.