Donating to charity can be one of the best decisions you ever make, from both a personal and financial perspective. But when you claim your charitable contributions on your income tax return, it’s easy to make mistakes. Since these oversights can trigger an audit, or even cause you to be penalized for unpaid taxes, make sure you’re following these rules precisely.
Don’t overestimate how much items are worth. Claiming the original purchase price of donated items is a common accounting mistake. If you give household or personal items to charity, remember that you can only claim their depreciated values. Think of the amount you could ask if you wanted to sell them. Using a devaluation guide can help you to correctly estimate the value of your items, so that you don’t claim too much on your taxes return.
Keep your receipts. Ask for receipts when you make charitable donations, and keep them on file for three years in case of a tax audit. It can also be wise to keep photos of donated items. Without proof of your charitable donations during an audit, the IRS may snatch away your deductions.
Consider the value of items you receive in return for donations. Sometimes you might receive an item in return for your charitable donation. For example, you might bid $10,000 on cruise tickets at a charity auction. You can’t actually claim that entire $10,000 as a deduction on your taxes; first, you must deduct the actual value of the item you received (the cruise tickets).
Seek the advice of a tax professional. If you’re planning to claim significant charitable donations on your tax return, seek the advice of a professional first. The best protection against an audit is to make sure you file your taxes correctly in the first place!