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Making Your Charitable Deductions Count on Expat Tax Return

Making Your Charitable Deductions Count on Expat Tax Return
Ines Zemelman, EA
20 December 2012

Most taxpayers are aware that charitable donations can increase your itemized deductions when it comes time to file US expat taxes.  There are, however, rules along with the deduction of charitable donations of which every US taxpayer should be aware.  While more detailed information is available on the IRS website in Publication 526, this article will outline the 6 most important aspects of making sure your charitable donation work for you on your US expat tax return.

6 Important Tips for Charitable Deductions to Consider Before Making a Donation You Plan on Claiming Against the Current Tax Year

The IRS made a point of publishing 6 basic tips for taxpayers to ensure that charitable donations may be claimed on your tax return. Taking a few minutes to review these tips could save you hundreds of dollars or more on your US expat taxes.

Tip 1: Charitable Organization Must Be Tax Exempt

First and foremost, in order to claim a charitable donation on your US expat tax return, you must have donated to a tax exempt charity as determined by the IRS.  While every charity will be able to tell you whether or not it is tax exempt, you may perform due diligence and verify the information to be safe.  To make this easy for taxpayers, the IRS has an Exempt Organizations Select Check available on its site.

Tip 2: Claim Your Charitable Donation on the Correct Form

A charitable donation is one of many itemized deductions which must be claimed on Schedule A, which should be filled out and filed with Form 1040.

Tip 3: You May Not Claim More Than FMV (Fair Market Value)

There 2 very specific aspects of this tip which are all equally important to note:

1:  Fair market value of the item you donated is the maximum you can claim for a donation.  This means that if you decide to donate a family heirloom with a current FMV of $2,500, you may not claim any more than that amount because of the sentimental value held by your or another family member.  It’s important to remember that charitable organizations also keep records, and mismatching information can lead to your US expat tax return being scrutinized and probably rejected or at least prevented from being processed for months.

2:  If you receive compensation or a gift for any donation you must deduct the FMV of the gift.  For example, if you are attending a $500 charity event and you have been awarded a $100 gift certificate for your contribution, the maximum you can claim on your itemized deductionsas a charitable donation is $400 ($500-$100).

Tip 4: Maintain Thorough and Accurate Records of Your Donation(s)

As indicated earlier, tax-exempt charitable organizations maintain records of all donations and offer a receipt to donors.  You should be careful to store all receipts for all donations – no matter how small.  If you happen to lose the receipt issued to you by the organization to which you donated, you may be able to prove your donation sufficiently by providing a canceled check, bank statement, credit card statement, or any other form of documentation which proves the transaction occurred.   It’s important that your evidentiary documentation contains the name of the tax exempt organization which received your donation, the date of the donation, and the amount or FMV of the donation.

Tip 5: The Higher the Donation, the More Records You Should Maintain

Charitable donations which the IRS considers large ($250 or higher) have more reporting requirements than smaller donations.  The primary difference of a donation with a value of at least $250 is that you are required to receive a written statement from the charitable organization to which you donated.  The written statement provided to you should have (minimally) the name of the organization, the date and amount or FMV of the donation, and whether or not your received a gift or any other cash or goods in exchange for your charitable donation.

If your donation is valued at $500 or higher, there are additional reporting requirements.  In order to claim a deduction on donations with a value of more than $500, you must file Form 8283.  If you donated a non-cash item such as a vehicle or property which is valued at $5k or more, you will be required to acquire and submit a property appraisal with Form 8283.

Tip 6: Timing is Crucial

Generally speaking, you may only claim the charitable donation deduction for the tax year in which the organization receives payment.  For example, if you decide in September that you are going to donate $800 to the tax-exempt charity of your choice with installment payments of $200 a month beginning in October, you will have only given $600 to the organization by the end of the year.  As such, you are not allowed to claim the entire $800 pledge; you may only deduct the $600 which was received by the organization in the tax year for which you are filing, and you will be able to deduct the remaining $200 on next year’s tax return.

Credit card donations follow the same rule, and the fact is that when you make a credit card payment the charity to which you donated receives their money practically immediately.  If you make a credit card donation on December 15 but you do not plan on paying the bill until January of the following year, you may still claim the deduction for the current tax year, because the organization in question received your donation before December 31.

Need Help Itemizing Deductions or Filing Your US Expat Tax Return?

Filing a US Expat tax return can be confusing, to say the least, and it’s not uncommon for US Expats to have questions about charitable donations and other itemized deductions.  If you need help determining your deductible expenses or helping to determine the value or legitimacy of a charitable donation, we offer very reasonable pricing for expert tax advice.  If you prefer a professional tax professional to prepare your US expat tax return, we specialize in US expat taxes and will offer preparation services for a low flat rate.  Take the guesswork out of your US expat tax return by contacting us at Taxes for Expats.

Ines Zemelman, EA
Founder of TFX