Maybe it’s because I am in the world of accounting, but any time I put money into an offering, donate to a charity, or give goods to a thrift store, I always make a mental note to keep the receipt.   Actually keeping the receipt is an entirely different matter!   I make the mental note, because I know that at the end of the year, I can deduct the donation on my taxes.   Kind of a nice gesture by Uncle Sam, don’t you think?   If you donate an earned dollar to a good cause, you won’t be taxed on that dollar earned.

It’s a very nice thought, but quite often it never becomes a reality for taxpayers.   Oh, they do donate, that is not the issue.   There are just some obstacles in the tax code (not to mention everyday life – “now where in the heck did I put that receipt!?” – that prevent your  donation from becoming a deduction.

The first obstacle is the required evidence of said donation.   Without either written evidence from the charity or a bank record, it would be a risky move to claim the deduction, because it would not hold up in an audit.   This first obstacle is so good; you hit it before even looking at any tax forms!

The second obstacle is itemizing your deductions.   The government lets us deduct the cost to survive.   That arbitrary figure actually has a total, $5,800 per person for the 2011 tax year.   How they came to that exact figure… who knows.   They call that the standard deduction.   If you feel you’ve spent more than that on medical/roof over your head/charity – (good or needed things really) – , then get out a pad and paper and start adding up those expenses.    You can deduct property taxes, mortgage interest, donations to a credited charity, medical expenses (the amount over 7.5% of your AGI out of pocket), and job related expenses (the amount over 2% of your AGI out of pocket).   If your itemized deductions clear the $5,800 hurdle ($11,600 if married filing joint) then you’ve passed the second hurdle and your new standard deduction becomes the total you’ve come up with.

The third obstacle – if your donation is over $250, than earlier said proof is no longer enough.   Now, you need proof from the organization that you did not receive any benefit for the donation.

The fourth obstacle – if your donation is a non-cash donation over $500, then you need even more proof.   You have to file a separate form now, and you can bet this will trigger some attention from the IRS!     This form requires you to detail who you gave the donation to (the name and address of the organization), the source of the item (how you came to possess it), and what it is worth at the time of donation.   Usually this is the “thrift store value”, although appraisal or comparable sales would work as well.

The fifth obstacle – if your donation is over is a non-cash donation over $5,000, and then an appraisal must be made by a qualified appraiser in accordance with generally accepted appraisal standards.   This appraisal must be made no earlier than 60 days prior to donation.  

Kevin