CARL WATTS & ASSOCIATES

September 10, 2018

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The Charitable Contributions
Deduction

This requirement does not apply to contributions of food, paintings, antiques, other art objects, jewelry and gems, or collections, and does not apply to a contribution of an item for which a deduction of more than $500 is claimed if the taxpayer obtains a qualified appraisal of the item. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

For claimed contributions over $5,000, generally a qualified appraisal prepared by a qualified appraiser must be obtained.

Special reporting requirements generally apply to vehicle donations, and if you wish to claim such donations you must attach any required documents to your tax return. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2018 count for 2018, even if the credit card bill isn’t paid until 2019. Also, checks count for 2018 as long as they were mailed in 2018.

If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive.


Although you can't deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be: unreimbursed, directly connected with the services, for expenses you had only because of the services you gave, and not personal, living, or family expenses.

You can also deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of your car in giving services to a charitable organization. You can't deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance.

A couple of worth mentioning suggestions are the following:

If you are at least age 70 1/2 and have an IRA, there is a special section in the tax code that can provide some relief. A qualified charitable distribution, or QCD, allows anyone aged 70 1/2 or older on the date of the contribution to donate up to $100,000 annually to a public charity directly from your IRA without counting the amount as taxable income. (You generally report the full amount of the charitable distribution on the line for IRA distributions on your tax return. On the line for the taxable amount, enter zero if the full amount was a qualified charitable distribution. )

Giving appreciated investments, such as stock shares, allows donors to deduct the investments' full market value (subject to certain limits) without having to pay capital gains tax on the appreciation. Selling complex assets can generate heavy capital gains tax as well as the 3.8% net investment income tax. Contributing complex assets to a public charity, however, can enable the donor to eliminate capital gains taxes while taking an income tax deduction equal to the full current market value of the donated asset, not just the cost basis.

For all of these, keeping good records is key to qualifying for the full charitable contribution deduction allowed by law. In particular, this includes insuring that you have received required statements for two contribution categories—each gift of at least $250 and donations of vehicles.


As simple as charity donations may seem, with all the rules and regulations in place, old and new, it is far better to get help from a tax professional in determining all the tax deductions you are entitled to, as well as in all your dealings with the IRS.
Being charitable is a commendable and welcome act at any time, whether it is Christmas, the hurricane season, or just an ordinary day. Charity is also considered to be a reward in itself. But, as you know, there is also such a thing as the charitable contributions deduction which encourages Americans to donate to a multitude of worthy causes and reduce their tax burden at the same time.


This newsletter is intended to provide you with the most useful pieces of information to consider regarding the deduction of charitable contributions in general and the changes brought by the Tax Cuts and Jobs Act (TCJA).

First of all, you have to make sure that your donation is to a qualified organization. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible even if they are not listed in the tool’s database. We should mention that you cannot deduct contributions to specific individuals.

Secondly, only if you itemize your deductions on Form 1040 Schedule A you can claim gifts to charity. If you choose the standard deduction you cannot deduct your charitable contributions. This includes anyone who files a short form (Form 1040A or 1040EZ).

The new Tax Cuts and Jobs Act (TCJA) eliminated or restricted many itemized deductions beginning in 2018, and raised the standard deduction. That means fewer taxpayers are likely to itemize (most probably up to 50% less).

At the same tine, the TCJA enhanced the deduction for charitable contributions by raising the limit that can be contributed in any one year. The limit is now 60% of adjusted gross income, up from 50%.

If you use the standard deduction, you will no longer be able to receive an additional tax break for contributions you make to a qualified charity.

And now a few rules regarding the different categories of charitable contributions you can make.

For monetary donations you must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount.


Under the record-keeping rule effective for all cash, check, electronic funds transfers, credit card charges, or other monetary contributions of any amount made in taxable years beginning after August 17, 2006, the donor must obtain and keep a bank record or a written communication from the donee as a record of the contribution. Written records prepared by the donor (such as check registers or personal notations) are no longer sufficient to support charitable contributions.

Bank records for this record-keeping requirement include bank or credit union statements, canceled checks, or credit card statements. They must show the date paid or posted, the name of the charity, and the amount of the payment.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document furnished by your employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Besides Schedule A, taxpayers who give property to charity usually must attach a special form for reporting these noncash contributions. If the amount of the deduction for all noncash contributions is over $500, a properly-completed Form 8283, Noncash Charitable Contributions, is required.

Charitable contributions of clothing and household items (including furniture, furnishings, electronics, appliances and linens) generally must be in good used condition or better to be tax-deductible.

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