Charitable Giving and Legally Claiming Tax Deductions During Retirement
Many people who are elderly or retired take satisfaction from helping their community by doing volunteer work or contributing to charitable organizations. To encourage them, the IRS provides tax deductions for certain expenses and contributions in this area. For you to get the deduction, the organization must qualify under the IRS rules, which means that it will have an IRS letter denoting its tax-exempt status. Qualified organizations may be either public or private. You can ask the organization for proof of its tax-exempt status, or you can consult Publication 78 on the IRS website, which provides a list of tax-exempt organizations.
Providing volunteer services does not qualify you for a tax deduction. However, expenses incurred as part of your volunteer activities may be deductible. Some people may need to buy certain clothes that are specific to their work, or they may need office supplies or advertising materials. If you travel or incur phone bills for your volunteer work, or if you hold a fundraiser, you may be able to classify at least some of the related expenses as deductible.
Donations of Cash
You must keep a tangible record of any donation to a charity to make sure that it qualifies for a deduction. This may be a receipt that contains the date and amount of the contribution, as well as the name of the organization, or it may be a canceled check or a bank statement with the same information. A donation to a qualified charity generally is fully deductible, as long as you do not receive anything in exchange. For donations of $250 or more, the organization must provide you with a written acknowledgment of the donation. This must state the amount that you donated and state whether you received anything in return.
If you do receive something in exchange for your donation, regardless of the amount, your deduction will be reduced by the value of what you received. For donations of more than $75 when you received something in exchange, the organization should estimate the value of the items or benefits that you were provided. You do not have an obligation to estimate those benefits independently.
Donations of Property
A donation of property involves more complex rules, which may depend on the type of property that you are donating. The property does not need to be new, but it may need to be in good condition or otherwise functional. The property can be tangible, such as cars and real estate, or it can be intangible, such as stocks. The basic rule is that a deduction applies to the fair market value of the donated property, as of the date that you made the donation. In other cases, though, you can get a deduction only for the tax basis in the item. Calculating the tax basis involves taking several factors into account, such as how much you paid for the property, any improvements that you made to it, and any tax benefits that you previously received for it.
If you donate property that has a high value, such as some types of real estate or artwork, you may need to enlist the assistance of an appraiser. The IRS also may require you to complete specific forms. You can refer to IRS Publication 561 for more details.
