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Charitable deductions and tax planning: know the IRS guidelines

We normally have our noses to the grindstone in this blog, tackling such nuts-and-bolts tax topics as IRS tax liens, worker classification issues and offshore account compliance.

In this post, however, only a little over a week away from Christmas, we will be trying to channel some holiday spirit in our topic selection.

And so, while charitable donations and the tax deductions they can bring are not one of the major threads in this blog, we will devote this post to that subject.

Let's start with a very basic, though cautionary, statement. When a taxpayer takes large charitable deductions, it can sometimes increase the scrutiny the IRS applies to the return. We do not say this to discourage you from giving generously.

But it is important to make sure, when seeking tax deductions for charitable gifts, that you follow the guidelines set up by the IRS. You do not want to inadvertently increase your chances of a tax audit.

For example, there are some very specific guidelines for monetary donations. As a taxpayer, it is not advisable to unilaterally claim a deduction without proper paperwork.

Instead, you should be sure to get a bank record, such as a cancelled check, or some other written acknowledgement from the organization to which you donated.

There are also more specialized considerations that can come into play when giving to charity. For example, there are detailed rules concerning tax-free transfers of assets to charity.

Gifts of household items or clothing are of course a common scenario. When such gifts are worth $250 or more, it is necessary to get a written acknowledgement from the charitable organization before claiming a tax deduction.

Source: IRS.gov, "IRS Offers Tips for Year-End Giving," Dec. 16, 2013

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