Last week I posted tips on the Tax Resolution University blog to remind taxpayers that year-end charitable contributions can be beneficial to their taxable income. You can read the entire post here. However, every year some taxpayers feel the urge to overstate these “gifts” and claim charitable deductions much higher than their income level. This is a huge mistake because it raises IRS red flags and often triggers a tax audit.
IRS Red Flag: Too High Charitable Contribution
Taxpayers are encouraged to avoid this temptation and other tax strategies that could prompt an IRS audit. Here are five tax tips for smart charitable giving that can help keep IRS auditors at bay:
All Contributions Must be Made before December 31 – If you intend to take an itemized charitable deduction on your 2012 tax return. Also, donations must be made to a qualified charity.
Take the following measures to make sure yours is a qualified charity:
- Ask about their tax-exempt status. With identity theft issues on the rise you, can never be too careful in making sure your donation goes to the cause that you believe in.
- Go to at IRS.gov to use the Exempt Organizations Select Check tool to check qualified charity status.
Donations by credit card to a qualified charity are acceptable deductions if made by Dec. 31st. A gift by check if postmarked in December also counts for 2012.
Know what Is Deductible – In general terms,the IRS states that taxpayers can usually deduct the following:
- Cash contributions made to a qualified charity.
- The fair market value of most property donated to a qualified charity.
Donated property such as clothing, household items, or boats and cars must be in good, used condition in order to take the deduction. Gifts given to individuals; friends, family or strangers are not deductible.
Keep Good Records of Donations –The IRS mandates taxpayers keep a written record of all cash contributions regardless of the amount. Accepted records are as follows:
- A cancelled check
- Bank or credit card statement
- Payroll deduction record
- A written statement from the charity showing charity’s name, contribution date and amount.
Don’t Make Major Purchases Based on a Tax Refund –The IRS has already begun to warn of tax refund delays in 2013 – you may want to postpone large purchases for a later date should a refund slow down occur.
Get Tax Help Now – Hire a Tax Professional – The IRS has stepped up its collection activities, so preventing potential tax problems like an IRS tax audit is in your best interest. However, if you are past the point of prevention, because you are currently under audit or have other tax troubles, don’t go it alone. Contact a Qualified Tax Audit Specialist who can represent your case before the IRS and help you resolve these IRS tax issues for good.