How to Protect Charitable Donations From IRS Nitpicking
NEW YORK (TheStreet) -- People donate to church and charity for a variety of reasons. But, I would hope, not just to get a tax deduction.
The tax benefit from donating to a religious organization or charity is not a dollar for dollar benefit. If you give $1,000 to charity you do not save $1,000 in taxes. If you are able to itemize, you get a tax deduction based on your tax bracket: if you give $1,000 to charity, can itemize deductions on Schedule A, and are in the 25% tax bracket, Uncle Sam will "reimburse" you for $250 of your contributions. You must have a hard-copy receipt for every single dollar you contribute to a church or charity in order to claim a tax deduction on Schedule A!
The best advice that I can provide as a tax professional, when it comes to charitable donations, is to never do something just because it is tax deductible. It does not make sense to spend $1,000 to save $250. You are still $750 "out of pocket."
As long as you are going to donate money or property to charity you might as well take advantage of the available tax benefit. It is very important to follow the rules and regulations established by Congress and the IRS when making charitable contributions, as recent Tax Court decisions have proven.
First of all, make sure the organization to whom you are contributing qualifies for a tax deduction. You can claim a deduction for cash or property given to a qualified tax-exempt organization created or organized in the United States or any possession under the laws of the United States or any state or possession.
To find out if a charity is a "qualified tax-exempt organization" click here and enter the information for the organization.
You CANNOT deduct:
1. Contributions made directly to an individual or family, regardless of the recipient's financial situation or health status
2. Contributions to an organization created to lobby for changes to federal, state or local laws
3. Contributions to political organizations or election campaigns
4. Contributions to non-profit homeowner or condo associations, or social or sports clubs
5. Contributions to foreign organizations
6. Raffle or 50-50 tickets purchased from a church or charity
Charitable contribution deductions will not be allowed for any monetary contributions by cash or check unless the donor maintains a record of the contribution. The record must be in the form of:
an actual cancelled check
a bank record (i.e. a copy of the front of the check included on your monthly bank statement)