Only Itemizers Can Deduct Charitable Contributions

While a tax deduction may not be your main motivation for making a donation to your favorite charity or arts organization, you might as well take advantage of the tax break if you can. To do so, you must have a receipt for your contribution, and you must itemize your deductions on your income tax return.

Sign up for Tax Tips in your e-mail throughout the filing season

In general, it makes sense to itemize only if your total deductions for such expenses as mortgage interest, property taxes, medical expenses, charitable contributions and miscellaneous deductions combined exceed the standard deduction for your filing status. For 2010, the standard deduction is $5,700 for individuals, $8,400 for heads of household and $11,400 for married couples filing jointly.

Normally, to claim a charitable contribution on your 2010 tax return, you had to make your contribution in 2010. But there was an exception last year for contributions to the Haiti earthquake relief effort. Donations made in January and February 2010 in the wake of the January 12 earthquake could be deducted on either your 2009 or 2010 tax return. So if you claimed the deduction on your 2009 return, you can’t claim a deduction for the same contribution on your 2010 return. Generally, you can write off cash donations of up to 50% of your adjusted gross income.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Get a receipt

You’ll need receipts for all of your cash donations to tax-qualified charities. You can rely on bank records, such as canceled checks or bank statements; credit-card statements; or payroll deductions. And if your contributions entitled you to receive merchandise or services in return, such as admission to a charity event or a boxed set of DVDs, you can deduct only the amount that exceeds the fair market value of the benefit received. Donations of $250 or more require a written acknowledgement from the charity containing the date and the amount of your donation.

Estimate the value

If you went to the trouble of cleaning out your closets in search of year-end donations, don’t shortchange yourself by underestimating the value of your used clothing and household items. Most tax-preparation software programs will help you value your donated items. Or you can assign your own values based on what the items would sell for in a local thrift store -- not the price you paid when they were new. Take the time to list each item and corresponding fair market value, and you may be amazed how quickly it adds up. (And you may never again be tempted to assign a cursory $25-a-bag estimate to your donations.)

If your noncash contributions total more than $500, you must complete Form 8283 and attach it to your tax return. Single items valued at $5,000 or more require a written appraisal.

Special rules for vehicles

In most cases, tax deductions for donated cars, trucks and boats are limited to the amount the charity receives from the sale of the vehicle -- often a very small amount -- and require a written acknowledgement from the charity. There is an exception that allows you to claim a larger deduction for a donated vehicle: If the organization regularly uses the vehicle to perform charitable activities, such as delivering meals, or if it gives or sells it to someone in need for substantially less than it is worth, you can deduct the car’s fair market value. Make sure you get a receipt from the charity substantiating your donation on Form 1098-C.

Deductions for doing good

Although you can’t take a tax write-off for the cost of your time devoted to charitable activities, you can deduct the value of donated items, such as casserole ingredients for the food you cooked for a local homeless shelter or the stamps you bought to mail contribution appeals for a favorite charity. You can also deduct the mileage you rack up during your charitable rounds to the tune of 14 cents per mile in 2010. And if you are required to wear a uniform in connection with your nonprofit activities, you can deduct the purchase price and cleaning costs.

Tax Break for IRAs

In December, Congress retroactively restored the rule that allows individuals 70½ and older to direct as much as $100,000 of their IRA distribution directly to a charity and to exclude that amount from their income in 2010. Reducing your adjusted gross income not only reduces your tax bill, but it may make you eligible for other tax breaks tied to income, such as trimming the amount of your Social Security benefits that are taxed. However, you can’t double-dip and deduct your IRA contribution as a charitable donation.

A special relief provision in the last-minute tax legislation allowed IRA owners until January 31, 2011, to make such donations and to exclude the donated amount on their 2010 tax return. But if you took your mandatory annual distribution from your IRA for 2010 before the law was passed, you’re out of luck. Some retirees had hoped that the IRS would let them recontribute the IRA distribution to take advantage of the charitable contribution provision. The IRS says sorry, no dice.