Tips for Avoiding an IRS Audit for Charitable Giving

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 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.

Charitable Contribution and Tax Deduction

Giving is part of Christmas and most holidays for that matter. It is tradition across the world for people to exchange gifts during holidays and other important days of the year. Corporate giving is one of the ways in which the companies give back to the communities in which they operate. It is a way in which the locals are allowed to share in the fortunes of the company that is in their environment. That is just one part of it; the gifts that are given away have tax implications to the company or the person who is giving them away. To start with, the company that is giving away the gift may be required to pay taxes due on that gift if it goes beyond certain thresholds. This is why it is important for the gift giving season to be handled with caution.

First, companies should confirm whether the firms to which they are bestowing the gifts are authorised. Checking whether a company is authorised can be done on the IRS website through a quick search. Those organisations that are not listed should be further scrutinised to determine if they are working under a tax deductible scheme. In general, it is much better to deal with firms that are listed since you can deduct your contributions to them for tax purposes. It is also important to note that the small gifts are not usually deductible unless a check is written or a receipt is received for such a gift. In the same vein, any donations that are in excess of $250 have to come with a contemporary receipt. This receipt acts as proof of the donation since the cheque only is not considered to be full proof. In general, you are allowed to deduct the value of the goods that you receive from the total of the receipt. In cases where you do not receive a gift in return, then you are supposed to indicate the same on the receipt for the IRS to consider it a valid proof of transaction. This receipt is required to be given at the time when you make the contribution as the IRS usually does not accept any receipts that are made out later. In essence, for every contribution you make that you intend to deduct from your taxable amount, it is important to get a receipt for the same immediately after making the contribution so as to be on the safe side with the tax man.

The rules for making contributions are generally simple. You are required to make a list of all the goods that you are contributing and to who you are contributing them to. Afterwards, calculate the value of these goods and get a receipt for them once you drop them off at their intended destination. Some of the goods such as art or cars may have special rules applying to them. For the larger donations, it is important to have an independent valuer make a valuation on your behalf for taxation purposes.