It’s tax season. It happens at the same time every year, and yet for a lot of people, it feels like a surprise. One of the most challenging tasks, especially for a couple filing jointly, is keeping track of charitable donations.
So even as you’re gathering all of your 2016 tax documents throughout the next few weeks, this is also the perfect time to think about how you can better prepare for next tax season. Here are some tips to make calculating and documenting next year’s charitable donations easier.
Taxpayers get a standard deduction from their income when they file taxes. The deduction lowers the dollar amount on which they are taxed. If the value of their charitable contributions to qualified organizations and any other deductible expenses exceeds the amount of the standard deduction, then it makes sense to itemize.
The Internal Revenue Service requires documentation for all itemized charitable donations. If your donation is less than $250 in cash or noncash items, such as clothing or housewares, you’re required to have one record, either a bank or credit card statement or a receipt. However, if you donate more than $250 worth of goods or cash, you need both a bank record and something in writing from the charity that acknowledges your donation. For donations exceeding $500, written information about how you came to own the property is required, as well as the tax basis, which is the amount you originally paid for it. And if you donate more than $5,000 in cash or goods, you are required to have a written appraisal of the property, along with documentation of your donation from the charitable organization. (You also need an appraisal for an individual used-clothing or household goods item over $500.)
To avoid last-minute stress next year, take some time to think about how you could better track and organize your donations over the next 10 months.
For some people, it may be something low-tech, such as keeping paper copies of receipts in a labeled envelope or file. Of course, this requires printing all electronic receipts so you can add them to your file. If you find that you can’t print receipts immediately after you receive them — and many people can’t — you and your spouse might want to create an alternative plan. One idea is to forward all electronic receipts to both of you via email with an agreed-upon subject line such as “Charitable Donation Receipt” so that they can be easily found and printed later. This will also make it easy to search for all electronic receipts early next year.
Other people choose to keep track of their donations electronically using a document that they update each time they make a donation. Creating a document that both you and your spouse can access and update works well for many people.
And yet another idea to make tracking your cash donations easy is to commit to using only one credit card to make them. This way you’ll be able to see all of your charitable donations on your year-end statement. Of course, this option isn’t applicable to merchandise that you donate, but because those donations are often infrequent, it should be relatively simple to store those receipts with other tax documents.
There are several popular apps that can help you track charitable donations and determine the fair-market value of merchandise you’re giving away. ItsDeductible by TurboTax, available on iOS devices, is free and seems to be the most popular option. In addition to helping with the above tasks, this app can also tell you whether an item or expense is actually deductible. IDonatedIt is another iOS app that tracks goods you donate to charity. It costs $3 and allows you to keep a list of items you give away, along with photos and receipts. A third option, Donation Assistant, is available for both Android and iOS systems. This app allows you to do everything the other two apps do, but it also has a database of more than 1,300 commonly donated items to give a fair-market value of your donations.
As with all organizing challenges, consistency is vital. But to be consistent, it’s important that you choose the right system for your household. Commit to a system now and try to stick with it.