Charitable Contributions: When your client gives until it hurts, make sure they don't get hurt!
Charitable contributions are deductible only if your client itemizes deductions on their federal Form 1040, Schedule A, and has the proper documentation to support the deduction. Deductions for most charitable contributions are generally limited to 50 percent of your client’s federal adjusted gross income (AGI), but in some cases limitations of 30 percent and 20 percent of federal AGI may apply. Also, remember that payments to individuals are never deductible.
If your client received a benefit as a result of making a contribution to a qualified organization, the deduction is limited to the amount of the contribution exceeding the value of the benefit received. This frequently arises when a contribution entitles the donor to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event.
Your clients must keep adequate records to prove the amount claimed. Contributions of $250 or more to any single charity require written acknowledgment of the contribution by the charity (recipient of the donation) before claiming a charitable contribution. Written acknowledgement is required and must be concurrent with when a donation was made. This means the donor obtains the acknowledgement from the charity on or before the earlier of the date the tax return is filed or the due date of the tax return (including extensions). The written acknowledgement must contain:
1 Organization name.
2 Amount of cash contribution.
3 Description (but not the value) of any noncash contribution(s).
4 Statement that the charitable organization did not provide goods or services in return for the contribution, if that were the case.
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