Donating money helps make your corner of the world a better place and is also good for the soul. Charitable giving is also good for your taxes, because you can get some deductions for what you give away. However, you don't want to get too carried away. The Internal Revenue Service looks at what you donate, and anything it considers excessive can raise a red flag that you've underreported or overreported something.
Looking at Patterns
The IRS tends to take a harder look at donations that are much higher than the norm. According to Fox Business, most taxpayers who itemize deductions claim charitable deductions at an average of 3% of their income. While there is no set policy on when the IRS investigates charitable giving, anything significantly higher than average gets noticed. The tax man may look at your income and giving patterns and decide you're either not reporting all your income or claim you're donating more than you really are. The IRS limits your donations to 50 percent of your adjusted gross income, and different types of gifts require different forms. Make sure you get receipts for every donation you claim. While you are not required to attach receipts to your tax return for all donations, you should keep them on hand in the event that you are audited or investigated.
Donating much more than the 3 percent norm may be enough to raise interest from the IRS. If you make cash donations, it's easier to prove that you've donated as much as you claim. If you actually give cash, you can get cash receipts from the charity to document your gift. If you write a check, put the payment on a debit or credit card, or make an electronic payment, your bank or card provider will have records of your payment. You might also have statements or cancelled checks to document your payments.
The value of property donations is harder to prove, and the IRS is more likely to to investigate non-cash gifts than cash ones. In fact, CBS News reports that merely submitting Form 8283 -- which is used in non-cash donations of more than $500 -- is enough to raise some IRS eyebrows. Be sure to get an itemized receipt, whether your gift is a piece of land for a hospital to build on or a bunch of clothes going to Goodwill. You can only deduct the fair-market value of your donation -- not the price you paid for it. Because of the potential for abuse on claiming non-cash gifts, make sure you have all the paperwork.
If you give your church a tithe -- 10 percent of your income -- this puts your donations considerably higher than those of the average taxpayer. However, with the proper documentation you shouldn't attract undue attention for tithing. Make sure you fill out the gift envelope or use a credit card or check for your donation. Get a statement from your church at the end of the year to document your gifts.
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