Starting this year, the rules for deducting donations are a bit more stringent. First, charitable contributions now require documentation. Acceptable forms include cancelled checks, bank or credit card statements showing the funds transfer/payment, or written acknowledgement from the charity with the amount and date of the contribution. So, before you drop cash into the Salvation Army Santa's bucket or into the collection plate at your house of worship, think about using a check if you want to take the deduction.
Also, as of August 17, 2006, deducting donated clothing and household goods is no longer allowed unless they are in "used or better" condition. While the IRS hasn't defined what that means, it definitely frowns on donating items of minimal value, like used undergarments. This doesn't apply to contributions of items valued at $500 or more if a qualified appraisal is done.
If you give clothes or household goods to charity and would like a guide to help value these items, you can download the "Non-Cash Contributions Worksheet" from my website, www.neimanonline.com, in the "Forms and Resources" tab.
For donated items valued at more than $500, the recipient needs to provide you with documentation specifying whether the property will be sold or used by the organization. If the donated property is sold, your deduction is limited to the sale price. This is important if you plan to donate a car or any other piece of property. You are responsible for contacting the organization to find out whether the property has been sold.
Also, donating property with a fair market value of more than $5,000 is subject to new recapture rules. If the charity sells the property within three years, the difference between your purchase price and the amount claimed as a deduction must be recaptured (i.e., classified as income). You can avoid the income recapture if the charity certifies to the IRS that the property use was related to the charitable purpose of the organization.
Lastly, taxpayers older than 70 and a half now can make donations of up to $100,000 directly from their IRAs without paying income tax on the distribution. The contribution must be made using a direct transfer from the IRA trustee to the qualified charity. Required minimum distributions--RMDs or MRDs--qualify for this treatment. The taxpayer can't receive anything in exchange for this contribution or take it as a deduction on their tax return.
As always, refer to your tax advisor or financial planner for information on your specific situation.
Debra Neiman, CFP, is and principal of Neiman & Associates Financial Services, a financial planning firm and registered investment advisor in Watertown, Massachusetts. She's also the co-author of the recently released book, Money Without Matrimony: The Unmarried Couple's Guide to Financial Security.