Charitable Contributions

Did you make a cash contribution to your favorite charity? Have you recently spent a weekend cleaning stuff out of your garage or basement that you then donated to a local charity?
Charitable contributions can be tax deductible, but you must have the proper records to support your deduction. Due to the Pension Protection Act of 2006 the rules on record keeping for charitable contributions became a little more strict beginning in January 2007.

To deduct a charitable cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.

Under the previous rules, records such as personal bank registers, diaries or notes made around the time of the donation could often be used as evidence of cash donations. Personal records like this are no longer sufficient.

Here are some additional tips to help you deduct your charitable contributions on your 2008 federal tax return.

Charitable contributions are deductible only if you itemize deductions using Form 1040. (If you are a partnership or a sub-chapter S corporation the deductions will appear on your K-1 with instructions for their inclusion on Schedule A of your Form 1040. Only if you are a regular corporation will you reflect a charitable contribution on page one of your federal tax return.)
Contributions must be made to a qualified organization.

Used clothing and household items such as furniture, linens and appliances must be in good used condition.

Vehicle donations are subject to special rules.

To deduct charitable contributions of items valued at $250 or more you must have a written acknowledgment from the qualified organization.

To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Non-cash Charitable Contributions, and attached the form to your return.

So all of this is fine and good; but, how does it apply to alpacas? The rules as found in Publication 526, page 11, state that if the asset contributed is ordinary income or short term gain property you are limited to its fair market value less the amount that would be ordinary income or short term capital gain if you sold the property for its fair market value. Generally this means you are limited to your basis in the asset as your deduction. Example-you have a male you want to donate to 4-H whose value is $1,000. He was born on your farm. The deduction computation would be the FMV of $1,000 less the ordinary income you would generate if you sold him of $1,000 resulting in a deduction of zero. However, if your property donated is considered capital gain property your deduction can be the fair market value which would result in a $1,000 deduction in the above example.

More information is available on the IRS Web site at IRS.gov. A good resource is IRS Publication 526, Charitable Contributions, found on the web site or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by Internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is http://www.irs.gov/.

Above article courtesy of the Internal Revenue Service--with a few clarifications interspersed.