Benefits of a tax deductible charitable donation

It's that time of year once again folks. Yep, tax season! Although it's too late to benefit from a tax deductible charitable donation for 2010, this is a great time to plan ahead for of 2011.

There are many reasons people give. Most give because they know there are so many children and families out there who are in need and they want to give something back to the community that they love. However, there is no shame in taking the tax deduction, which can be claimed for financial contributions or in-kind donation of goods.

How does the tax deduction for a charitable donation work?

When you itemize your tax deductions on your return, you can take an income tax deduction for a donation to a 501(c)(3) charitable organization. Example: If you are in the 25% tax bracket, you would save $250 on a $1,000 tax deductible donation to Twin Cities Habitat.

How do I handle deductions for in-kind donations to a charity?

The IRS has guidelines for non-cash contributions, like clothing, appliances, furniture, construction materials, etc.

In most cases, the fair market value can be deducted for items that have been owned for more than one year. If you are donating an item that has appreciated, the entire fair market value can be deducted (i.e. you are not taxed on the appreciated amount).

You must have a receipt from the charity showing that the items have been donated to claim a deduction. If the items donated exceed $500 in value, you will be required you to fill out a Form 8283 with your tax return. If an item or items exceed $5,000 in value, you will likely need to have your donation appraised by a qualified appraiser.

Note: This information is meant to be helpful in considering the potential benefits of making a tax deductible charity donation. For advice on your specific tax situation, you should consult your own tax adviser.