The IRS Flags Charitable Donations So Do It Right

The fact that you actually get something in return is one of the attractive reasons for giving to charitable institutions. Simply knowing that you have helped someone gives a general light feeling. If these are reflected in your tax returns, the IRS pays attention as these entitle you to a tax deduction. In order to receive these deductions, you literally have to jump through fire first. As of January 1, 2007, more documentation is needed for deductions related charitable contributions. In the end, people still continue to make donations in spite of the added requirements concerning this undertaking.

Savings equal to your marginal tax bracket will be acquired if you donate to charity. For example, you'll be entitled to a savings worth $250 or 350% if you give a donation of $1,000 and you're in the 25% or 35% tax bracket, respectively. Therefore, in the 2nd scenario, the donation is just actually equal to $650. Sadly, there are restrictions to the amount of savings that you can get. You will be subject to the applicable deduction limits if your total contributions within a year is more than 20% of your adjusted gross income (AGI). The limits that will be set on you will depend upon your specific situation. More often than not, the rules concerning donations could get complicated and ambiguous that it will lead to audit flags or even an IRS problem.

In certain cases, you get to contribute a very large amount of money to a fully accredited non-profit organization because you didn't spend much of your $100,000 AGI. In this example, you would be limited to only a 50% deduction of your AGI, which is equal to to $50,000.

The examples above are only relevant to donations made to fully-accredited institutions. You may also take advantage of deductions equal to the time and effort you've invested in volunteering to charitable works. However, in in cases when you make donations to specific individuals or to those who simply asked for your help, such contributions will not merit a tax deduction.

Smart givers never sell their stocks and simply donate the cash equivalent. Wise taxpayers do not hand over straight money, especially when they can give stock or securities that have appreciated because doing so helps them avoid paying any tax on the income earned from the appreciation. The truth is, you can actually deduct the full market price of your stocks and not pay taxes on the appreciation if you have owned these for over a single year. For instance, if two years ago you purchased $1,000 shares of stocks worth $14/per share and now its present price is already $20/share, giving these stocks to charity will qualify you to a $20,000 deduction and a tax exemption equivalent to $6,000.

If you donate old equipment, furniture, and clothes to charitable institutions, you can also get deductions equivalent to the fair market value of those items. The Pension Protection Act of 2006 states that these items should be in good condition, otherwise you won't qualify for the deduction. Even though there was no clear and established definition of the word 'good', you may want to ascertain that all items donated meet this criterion. Doing so will help you avoid getting an audit, or an IRS problem altogether.

 Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He teaches attorneys, CPAs and Enrolled Agents in the finer aspects of IRS representation all around the United States. He can be reached at his website at http://www.getIRShelp.com

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