Tax Traps: How You Can Prevent Getting in Trouble with the IRS - Newschannel 6 Now | Wichita Falls, TX

Tax Traps: How You Can Prevent Getting in Trouble with the IRS

Tax laws regarding charity donations can be confusing, landing you into a tax trap and in trouble with the IRS.

The holiday season is a time to give. Give to charities to help those in need this holiday season. As 2013 comes to an end, many Texomans donate to their favorite charities and in return, receive tax deductions.

"One of the traps would be failure to get substantiation. If you don't get it, the IRS will disallow deduction. The other trap would be giving a gift of property and not having evidence of what the value of what that gift was," said Partner at Gibson, Davenport and Anderson, Erwin Davenport.

For those who are able to donate, having a large charitable donation is just one of the signs that could lead to an IRS audit.

 "The IRS is going to say bring me the records to show that the charity substantiated that gift. If you can't substantiate it, you don’t get the deduction. If it’s gifts of property then they’re going to be looking at where's your appraisal for that property because you have to substantiate what the value of that gift was. If you can’t do it you lose, they win," said Davenport.

It's very easy for someone to fall into a tax trap if they aren't paying attention.

Davenport wants to make sure if giving to charity is a choice you want to make, the tax benefits should only be a pleasant surprise.

Luckily, there tax-smart ways to prevent falling into a tax trap.

"Make sure you consider your overall tax situation and make sure you're giving for a charitable purpose and not simply for a tax purpose. You're not going to have any problems if you’re giving to a reputable, well recognized, well known charity in our community because those folks know the rules," said Davenport.

A useful tool Texomans can use is the Wichita Falls Area Community Foundation which will help you create a donor advised fund. With the donor advised fund, you and the Community Foundation can decide on what charities your donations will benefit.

Taylor Barnes, Newschannel 6
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