Taxpayers have a general inclination towards overstating their charitable contributions & gifts, compared to their income levels .This tendency can prove detrimental at raising the suspicion of the IRS and inviting audit on oneself. This is with reference to an article posted by me earlier, on how the year end contributions prove beneficial to saving tax.
Coming forth are tips on how to evade the roving eye of the IRS, along with extracting maximum benefits from this provision.
Make sure that all the donations are made before December 31 of the tax year. Make your donations imperatively to a qualified charity, which can be verified by taking simple measures: the charity concerned should be questioned on their tax exempt status, in order to avoid an identity theft scenario; by hitting the select check tool under the Exempt Organizations section on the IRS.gov site.
Donations and gifts made by credit card and a postmarked check consecutively by December 31st are acceptable donations.
The IRS has specified the list of possible deductions : Contributions made in cash to a qualified charity; value calculated as per the fair market of the donated property – clothes , boats , cars and household items in good and usable condition – to a qualified charity. Gifts to friends, family members, strangers and individuals do not qualify as acceptable donations.
All cash contributions, irrespective of the amount, need to be recorded in writing, in one of these specified modes: check which is cancelled; statement of bank or credit card and record of the payroll deduction; a written statement depicting the charity name, amount & date of contribution from the charity.
Avoid planning large purchase based on a tax refund. The IRS has already started giving indications on a possible delayed tax refund in 2013. It may be required of you to push ahead large purchases in case the refunds actually get delayed this year.
Gearing up towards preventing the audit by the IRS as discussed, is definitely a healthy step, especially in the wake of the IRS recently stepping up its collection activities. In case you have already passed the preventive phase and are having troubles related to taxes or are being audited by IRS currently; think of arranging representation qualified at presenting your case before the IRS on tax audit, along with helping you solve your other taxes related issues.