Donation Value

• One factor that directly affects the amount of charitable deduction you can expect to receive is the fair market value of the property you donate. The IRS suggests various methods for determining fair market value but does not require a specific method. However, it does require that the method you use reasonably relate to a price you could obtain in the open market for the property. Generally, the appropriate method depends on the type of property you donate. To illustrate, taxpayers frequently donate used clothing to charities and take a tax deduction. The IRS suggests that you reference the price that consignment and thrift shops in your geographic area would charge consumers for similar articles of clothing in comparable condition. However, the governing rules strictly prohibit you from using a value that relates to the price you paid for the article.
  
  

50-Percent-Limit Organizations

• Another important consideration for estimating the levels of tax benefit your charitable contributions will yield are the types of organizations you donate to. Generally, your total deductions for the year may not exceed 30 percent of your Adjusted Gross Income (AGI). The limitation increases for the donations you provide to charities that the IRS deems a "50-percent-limit organization." The IRS provides taxpayers with access to a comprehensive list of charities that qualify for this higher limit. If you anticipate making a charitable donation and are indifferent to which charity it is, refer to the publication to maximize the tax benefit (see Resources).
  
  

Penalties

• The IRS has little tolerance for taxpayers who inflate the value of property they donate to increase tax savings. Federal law authorizes the agency to impose a 20 percent penalty on the underpayment of tax that results from an overvaluation of 150 percent or more. The penalty increases for valuations that are 200 percent or more of the property's true value. However, the IRS also has discretion to waive these penalties for taxpayers that show they have reasonable cause for taking the valuation position on a return.
  
  

Itemized Deductions

• Charitable contribution deductions are part of itemized deductions that you report on the Schedule A attachment to a personal income tax return. Therefore, the more itemized deductions you have, the more value each additional charitable contribution has to reducing your tax liability. However, if you have insufficient expenses to itemize and must claim the standard deduction, you may not deduct the value of your donations. You may carry the amounts forward to any of the future five tax years in which you have sufficient expenses to itemize.