Charitable Donations – Cash Contributions
If you itemize deductions on your tax return, you may be able to include any charitable contributions made during that filing year. Itemizing donations entitles taxpayers to charitable contribution deductions.
Qualifying organizations, typically 501(c)(3), serve the public, providing a valuable service to the community and do not operate for profit. In general, these organizations are either charitable, religious, educational, scientific or literary. Other types include governments organizations, nonprofit schools and hospitals, war veterans’ groups, and nonprofit organizations such as Goodwill or The Salvation Army. Qualified organizations can be found at the IRS’s Tax Exempt Organization Search Tool.
Charitable donations are generally limited to 60% of a taxpayer’s adjusted gross income, meaning you can deduct contributions that don’t exceed 60% of your AGI. Any contributions made over the limit can be carried over to the next tax year. Additional limits on deductions can be found in the IRS’s Charitable Contributions Publication.
Donations are considered cash contributions if they are payments made by cash, check, electronic funds transfer, online payment system, debit or credit card, payroll deduction or a transfer of a gift card redeemable for cash. Records must be kept showing the organization’s name, date of contribution and the amount of the contribution. Sufficing records can be bank statements, payroll deduction records or a receipt/letter from the qualified organization.
How to record charitable contributions
Donations are itemized on Schedule A of Form 1040 if the taxpayer is not choosing the standard deduction. Cash contributions can be reported with bank records or via statement from the organization. If the payment was automatically deducted from a paycheck, pay stubs or copies of W2’s can be used for records.
Cash contributions over $250 require a written statement from the qualified organization. Each donation over $250 must have separate acknowledgements. The statement must be written by the organization and include the amount of cash contributed and the date of contribution. They must also state whether the organization provided any goods or services in return for the contribution, as well as a good faith estimate for the item received in return.
Speak with an accountant at Murtha & Murtha to find out if itemizing charitable contributions is right for you.