Hi, a quick tax question about donations....?

To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. The amount of your deduction may be limited if certain rules and limits explained in this publication apply to you.

7.To claim a deduction for contributions of cash or property equaling $250 or more you must obtain a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document from the organization may satisfy both the written communication requirement for monetary gifts and the written acknowledgment requirement for all contributions of $250 or more. 8.If you claim a deduction of more than $500 for all contributed property, you must attach IRS Form 8283, Noncash Charitable Contributions, to your return.

9.Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which requires an appraisal by a qualified appraiser.

For more information on charitable contributions, use the search box check out Publication 526, Charitable Contributions, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Limits on Deductions

If your total contributions for the year are 20% or less of your adjusted gross income, you do not need to read this section. The limits discussed here do not apply to you.

Determining Fair Market Value

This section discusses general guidelines for determining the fair market value of various types of donated property. Publication 561 contains a more complete discussion.

Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts

Large quantities If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold.

Example

Giving Property That Has Decreased in Value

If you contribute property with a fair market value that is less than your basis in it, your deduction is limited to its fair market value. You cannot claim a deduction for the difference between the property's basis and its fair market value.

Deductions Over $500 But Not Over $5,000

If you claim a deduction over $500 but not over $5,000 for a noncash charitable contribution, you must have the acknowledgment and written records described under Deductions of At Least $250 But Not More Than $500. Your records must also include:

Deductions Over $5,000

If you claim a deduction of over $5,000 for a charitable contribution of one property item or a group of similar property items, you must have the acknowledgment and the written records described under Deductions Over $500 But Not Over $5,000. In figuring whether your deduction is over $5,000, combine your claimed deductions for all similar items donated to any charitable organization during the year.

Generally, you must also obtain a qualified written appraisal of the donated property from a qualified appraiser. See Deductions of More Than $5,000 in Publication 561 for more information.

http://www.irs.gov/publications/p526/index.html

Hope that you find the above enclosed information useful and helpful for your situation.

And wishing to a very happy thanks giving day coming up in a couple of days today is November 23 2010.

First, where did you get the $2000? The deduction is the amount similar items would sell for at the Goodwill thrift store, so unless you donated HUGE numbers of fairly expensive items, it’s not that high. Your deduction is not the original cost of the item.

Second, did you keep an itemized list of what you donated, including an estimated value on each item? If not, you have no deduction.

Then itemizing. If you don’t know what it is, chances are you haven’t itemized in the past. When you file your tax return, you have a choice of a standard deduction ($5700 this year for single, $11,400 on a joint return). There are certain items that can be listed as “itemized” deductions. Usually unless someone has a house and has large amounts of mortgage interest and real estate taxes, they don’t have enough to itemize, so take the standard deduction instead, which is an amount you get without listing or proving anything. You choose whichever, standard or itemized, gives you the lower tax – the amount is subtracted from your income before your income tax is calculated. If your deductions add up to less than your standard deduction, you’d pay more federal tax if you itemized.

Yes there’s a limit on what you can deduct, usually 50% of your income, but you’re nowhere near that.

IF you itemize and have a charitable contribution to deduct, the tax savings is at most the deduction amount times your tax bracket %, so if you donated $2000 worth of items based on thrift store prices, your tax savings at most would be $300.

And finally, most of the tax you owe isn’t income tax anyway, but self-employment tax. That wouldn’t be affected/lowered anyway by contributions or by itemizing.

If your really wanted to save money, you should have sold the items.

For donations, you only get to use the FMV (which you have to be able to defend to the IRS) as a deduction. So far you say you have donated $2000 of stuff. What else do you have? As a single person, you automatically get a standard deduction of $5700 and if $2000 is all you can itemize, you won't be itemizing because the standard deduction is a better deal. (You can also itemize $cash to charity, mortgage interest and property taxes. Even with a house, I can only itemize every other year.)

If you made $32,000, you federal tax bill will consist of:

$4521 of Self-employment tax.

$2639 of income tax.

-$400 of Making Work Pay Credit.

=$6760 due to the IRS.

Plus, I'm guessing, $230 for estimated tax penalty.

If you had any income last year, you will also owe some estimated tax penalty since you apparently sent nothing in during the year. I sincerly hope you have at least put the money aside so you can send it in.

PS, do you have any days where you visit more than one client? Getting to and from only one client a day is NOT an expense. Driving extra errands or to a 2nd client is, but you must have a detailed mileage log, not just "gas receipts."

There are multiple issues:

1) Donations are an itemized deduction. If you don't itemize, you can not deduct them at all.

2) You statutory limit for most charitable deductions is 50% of your income. Anything over that is carried forward.

3) For non-cash donations where the total exceeds $500, there are more forms to file. See Form 8283. You need to determine the fair market value of each item. The deduction is the lower of cost or fair market value.

http://taxguide.completetax.com/text/c60s10d654.as...

Edit: You are allowed to choose the "Standard Deduction" or "Itemized Deductions" and use the one that gets you the biggest benefit. For a single person, the Standard Deduction this year is $5700. Itemized Deductions include things like medical expense (over a certain limit), state income taxes, real estate taxes, personal property taxes, home mortgage interest, and charitable contributions. For most people, their biggest itemized deduction is their home mortgage interest. Generally speaking, unless you own a home and are paying on a mortgage, you probably won't have enough deductions to get over the $5700 Standard Deduction but, of course, there are exceptions.

I get clients all the time that get absolutely no tax benefit from their charitable deductions because just taking the Standard Deduction is better for them.

Make a list of everything you donated and go online and try and determine the value. Take that with you when you get your taxes done. It may help or it may not.

The bottom line is that if you own a home and have a mortgage, the deduction for charitable contributions will help you, since it adds to "itemized deductions" (which usually only exists when you have mortgage interest and property taxes).

If you don't have a home mortgage, the charitable contributions probably won't do you any good (standard deduction and not enough contributions to use itemized).

If you do use the charitable contributions, keep in mind that you can only deduct the fair market value, which is usually akin to thrift shop or garage sale prices, usually around 10% of new retail price. If your charitable contribuitons are $500 or less, you just need to list the amount. If they're more than $500, you have to fill out Form 8283 and itemize. Warning, Form 8283 can be an audit trigger. If you're not taking too much per item, it shouldn't be a worry.

Sorry, I had to chuckle about the "quick tax question." That's what clients say when they're asking for tax services but don't want to pay for it. When a client says "I just have a quick question," I say "I don't mind answering a quick tax question if you don't mind paying a quick consulting fee."

Then I laugh and we talk about what I charge.

for one thing merely donating your stuff to a charity does not automatically result in a deduction

charitable donations are included in Sch A, Itemized deductions which includes medical, taxes, mortgage interest, casualty losses and miscellaneous(ie union dues etc)

you have a standard deduction depending on your status and this basically covers most things one can itemize as a general rule

when one has a mortgage on a house, the interest almost always give that person the opportunity to file a sch A and claim all those subjects mentioned above, since that is usually greater than the standard deduction

the rule is that you can donate up to 50% of your AGI to charities(and in the case of huge givers, the excess can be carried forward) there is a 20/30 split, depending on the type of charity it is

also when you donate big things that you are claiming a value of $500 or more you will need to complete another form which indicates the value, the date you got it and the current appraised value

so, it boils down to the point, can you benefit at all by claiming the donations? if you are single, your standard deduction is $5700 and your $5000 donation will have no effect

Dear MissR: Taxes 101! OK?

When you file a tax return the IRS allows you to subtract a certain amount from your total income, why? Because they make the rules.

That subtraction comes in two forms (1) standard deduction & (2) your exemption amount.

The standard deduction was $5700 for '09 (I think $5750 for '10) and the exemption $$ was $3650 for '09 and this is for you and all kids (dependents).

Now after you make the subtractions you arrive at taxable income, go to a table and look up your tax and either pay the difference from your with holding or collect a refund.

Now the complication comes when you factor in a form called Sch A (itemized deduction). On Sch A you will list all mortgage interest, real estate taxes, medical expenses, donations(All of your items), and a host of other things. Now you compare the Sch A total against the standard deduction and use the one that gives you the larger deduction. If all of your donated things only total $4500 you will use the standard deduction, assuming you do not have any other Sch A entries.

IRS Pub 17 is a good reference for looking up all of these items.

This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent

The limit for deductible charitable donations is generally 50% of your adjusted gross income. If you donate more than that, you can carry the excess forward.

Your best tax benefit would be to maximize your unreimbursed work expenses, such as transportation, supplies, equipment, cell phone. Keep good records. These deductions directly reduce your self-employment income and save you both income tax and self-employment tax. Each $1 you can deduct translates into 15-40 cents savings on your taxes.

Your charitable donations aren't going to help you much. If you donated $10,000 worth of goods, you might save a few hundred dollars (assuming you do not have other large deductions such as a mortgage). This is because your donations do not reduce your income dollar for dollar, nor do they change the self-employment tax you pay. You would be better off selling your goods at a garage sale and pocketing the tax-free cash (since you are selling your goods for less than you paid for them).

For a contractor making $32,000, over half the tax is self-employment tax. Donations do not reduce the self-employment tax. Donations reduce only the income tax, which is less than half of the total tax for a contractor making $32,000.