Highbaugh Tax

If you do itemize and give to a qualified charity, there are tax deductions for your donation of time, goods, and/or money. Here's how it works:

• Cash Contributions: When you give money to a charity, it's considered a cash contribution regardless of your payment method. This includes any donation you make in the form of cash, check, credit card, or payroll deduction. Out-of-pocket or car expenses you incur while donating your services are also in this category.
  
  If you contribute to a charity and receive something in return, such as dinner or a tote bag, then your deduction is the amount you paid minus the value of the goods or services received.
   
• Non-Cash Donations: If you donate a car, boat, or plane with a claimed value of more than $500 to a charity, be aware that you no longer can deduct the fair-market value of the vehicle if the charity sells it. You can deduct only the amount received from the sale of the car. However, you generally can deduct its fair market value if the organization:
   
  • makes significant intervening use of the vehicle,
  • materially improves the vehicle, or
  • transfers the vehicle to a needy individual whose receipt of the vehicle is directly related to your charitable purpose of relieving poor and distressed or underprivileged people.
   
• Volunteer Time: You can't deduct the value of your time or services spent on charitable work. For example, if you're a graphic designer who spent hours on the church newsletter, you can't deduct your professional hourly fee. But you can deduct 14 cents a mile for the use of your car for charitable purposes, or you can deduct your actual expenses, such as gasoline. Those still providing services for Hurricane Katrina relief can deduct 32 cents per mile for 2006. If you donated any supplies or food during your volunteer work, you can deduct the cost of those as well.
   
• Goods: You can deduct the purchase price of new items, but the amount of deduction for used goods, such as clothing, household goods, furniture, or other non-cash items is based on the item's "fair market value." When calculating this, be sure not to overestimate its worth (watch out for sentimental pricing), but don't underestimate it, either. Many taxpayers underestimate the value of their contribution because they don't know how to assign accurate fair market values to their donation. To better determine value of your donated items, consider checking out prices at the thrift store where your donation will be sold.
  
  New this year: Under the Pension Protection Act of 2006, the IRS now considers the item's condition as well. Effective Aug. 18, 2006, the item must be in "good used condition" or better to qualify for a tax deduction. The IRS will not allow a deduction for items with little or no monetary value, such as socks. However, a deduction may be allowed for an item worth $500 or more if you attach a qualified appraisal to your return.
   
  Drive Away with a Tax Break

  Instead of going through the hassle of selling your car, you can donate it and guarantee a cash advantage -- a tax deduction. When you donate a car to a charitable organization you can deduct the fair market value of the car. The IRS defines fair market value as the price at which the car would change hands between a willing buyer and seller if neither were forced to buy or sell. To ensure that the IRS doesn't question your deduction, you can clip a page of classified ads showing the prices of similar vehicles or include a photo illustrating the car's condition. For deductions of $500 or more, attach Form 8283, Noncash Charitable Contributions, to your tax return. The form allows you to describe the condition of the car and how you determined the value. For deductions of more than $5,000, you must attach a copy of an appraisal, made by a qualified professional, to your tax return. In addition, you must fill out the appraisal portion of Form 8283 and attach it to the return.

  To take a charitable deduction, you must file Form 1040 and itemize deductions on Schedule A.

  Be aware that the IRS is on the lookout for auto donation abuses. Any sign of excessive valuation of your car could bring a possible audit. If you take a deduction for more than the value of the car you donated, you could be hit with a penalty of up to 40 percent of the unpaid tax. New for 2004 and later years: Deductions for cars for which the claimed value exceeds $500 will now depend on how the donated car is used by the charity. Also, a written acknowledgment (within 30 days) from the charity is needed.