‘Tis the season for gift giving and with the tax season approaching quickly, the IRS has sent out a “special addition tax tips“ bulletin regarding charitable contributions to help taxpayers understand how their generosity can benefit their taxable income. However, every year thousands of taxpayers overstate these “gifts” and claim charitable deductions significantly higher than their their income level, raising red flags and often triggering an IRS audit. This is not a good tax strategy.
It’s important that taxpayers have information to prevent any IRS tax issues regarding their deductions. Here are some tax tips for smart charitable gift giving that can help keep IRS auditors at bay:
Contribute to Qualified Charities before December 31 – If you intend to take an itemized charitable deduction on your 2012 tax return. Make sure you are aware of the following:
- Inquire about a charity’s tax-exempt status. Given the rise in identity theft issues you want to make sure your gift is received by the organization you intended it for.
- Go to IRS.gov and use the Exempt Organizations Select Check tool to make sure your charity is a qualified charity because this will be important when you want to take the deduction.
- Credit card donations charged by Dec. 31 are deductible for 2012 and you can still get the tax relief; even if the bill is paid in 2013.
- A gift by check if mailed in December also counts for 2012.
Remember: Gifts given to individuals; friends, family or strangers are not deductible.
What You Can Deduct – The IRS states that taxpayers are generally able to deduct cash contributions and the fair market value of most property donated to a qualified charity. Some donated property such as clothing, household items, or boats and cars must be in good, used condition in order to deduct them.
Keep Records of All Donations – This seems obvious but you’d be surprised how many people are caught off guard by this request when they get audited. The IRS mandates taxpayers keep a written record of all cash contributions regardless of the amount. A record could be a cancelled check bank or credit card statement or payroll deduction record. The charity can also provide a written statement that shows the charity’s name, contribution date and amount. Also, safe, convenient storage of financial records ensures easy access when filing tax returns or in the event you are ever requested to present your financial records to the IRS.
Don’t Base Major Purchases on an Early Tax Refund – Make sure you don’t plan major purchases with the expectation of receiving a tax refund before the bills arrive. The IRS has already begun to warn of tax refund delays in 2013 – you don’t want to find yourself over- extended and reliant on those funds should a slow-down occur.
Get Tax Help Now – Hire a Professional – Because of stepped up IRS collection activities, I advocate preventing potential tax problems such as an IRS audit as your best course of action. If you are past the point of prevention and owe back taxes or have more than three years of unfiled tax returns, there is a solution to your problem, but you need to act now. Even if you can’t afford to pay your back taxes, a Certified Tax Resolution Specialist, IRS tax attorney or CPA, can help you settle your IRS debt for good.
More Tax Help, IRS News and Tax Relief Tips:
- Tax Relief Weekly News Round-Up
- Michael Rozbruch Interviewed in Opportunist Magazine
- Proposed Law Could Revoke Passport for Tax Debt
- Ask the Certified Tax Specialist – Small Business Back Taxes
- Back Tax Help-How Long to Keep IRS Records