An area that can be considered as one of the most hotly contested on a tax return is charitable contributions. Charitable contributions can be made to qualified organizations in either monetary or non-monetary form. This could be as simple as putting a check in the offering plate at church on Sunday morning, or more complex, such as a charitable remainder trust. Following are some things to keep in mind as you select a charity to contribute to, how to determine what to contribute, and your recordkeeping responsibilities to justify your deduction. Type of charity
When donating to a charity, it's important to know what kind of charity it is. Most charities that you will contribute to are qualified non-profit organizations under the proper Internal Revenue Code section, such as 501(c)(3). Large national/international charities like the American Cancer Society or the United Way, and the majority of organized churches, fall under this category. But there are other types of organizations, like private operating foundations, that do not fall in the same category. Knowing the kind of charity you're giving to is important because contributions are limited to a certain level of your adjusted gross income (AGI). The deduction for contributions to qualified organizations are typically limited to 50% of AGI, whereas contributions to private operating foundations can be limited to 30% or 20% of AGI.
Cash is king
When contributing to a charity, cash is king for two reasons. First, this is the easiest way for you to keep up with your contribution; you write the check, and the charity will send you a receipt saying that you contributed $xx, and that no goods or services were received in exchange for the contribution. Second, cash is the best asset for them to support their programs. With cash they can buy supplies and pay their employees, as opposed to if you contributed a car, which they would have to maintain or sell.
What do I keep?
As mentioned above, when making a contribution to a qualified charity, they should issue you a receipt. You should keep these with your tax documents to support your deduction if you are ever audited by the IRS. Charities that receive non-cash contributions are getting pretty good about issuing receipts as well, such as Goodwill or Habitat ReStore.
There are some contributions that, regardless of what kind of paperwork you come up with, are not deductible. For example, payments to individuals and support of political organizations are usually not deductible.