Making The Most
Of Your Charitable Donations
As we approach the holidays you are most likely busy planning visits to family or getting ready for your holiday shopping. You are also likely planning to give some of your money or property to charity. Many charitable organizations report that they receive a majority of their donations in the last three months of the year. With this in mind, we want to share with you some simple guidelines to be aware of to make sure that you are properly rewarded for your generosity come tax season.
There are two different types of donations that you can deduct on your tax return, donations made with cash, and donations made with non-cash items such as clothing, furniture, or food.
DONATIONS MADE BY CASH
Once you have determined that the organization you have chosen meets the five basic guidelines, you need to make sure that you have proof of your donation. This can be accomplished with one of the following:
-
A receipt or other written document from the organization, showing the name of the organization, the date of the contribution, and the amount of the contribution
-
A cancelled check or credit card receipt that shows the name of the organization, the date of the contribution, and the amount of the contribution.
-
Keep in mind that you can also donate to most governments within the United States, if you ever feel inclined to pay more in taxes. (In which case we may not be the firm for you)
NONCASH DONATIONS
Noncash donations typically involve dropping off outgrown clothes or unwanted furniture at your local Goodwill or Salvation Army. The guidelines for determining if noncash donations to an organization are the same as the guidelines for cash donations. To determine the amount of a deduction you can claim for your noncash donations you need to know the Fair Market Value of the items. The Fair Market Value is the amount you could reasonably expect to receive if you sold the item instead of donating it. If you need help determining the value of your items, you can use Goodwill's Valuation Guide. When you make a donation to Goodwill or a similar charity, you should make sure you receive a receipt and keep a record of the items that you donate. This will ensure that you can take the tax deduction to which you are entitled.
FIVE BASIC GUIDELINES
to keep in mind when determining which donations are deductible:
1. Donations must be made to a corporation, trust, community chest, fund, or foundation. This means that donations to an individual, or a group of individuals is not deductible. For example, donating to a group of doctors who are going to the Philippines to provide medical care is not deductible, but donating to an organization that will send doctors to the Philippines is deductible.
2. The organization must be created or organized in the United States. The organization can still operate overseas, as long as it is based domestically.
3. It must operate for religious, charitable, scientific, literary, or education purposes, for the promotion of amateur sports, or for the prevention of cruelty to children or animals.
4. It must not operate for the profit of a private shareholder or individual
5.It must not engage in political lobbying
Through the internet, it is easier than ever to give money to those in need. Most charitable organizations now have a website where you can donate online. This surge in online donations has led many to donate smaller amounts to various organizations, rather than one large donation to a specific organization. While this provides donors the freedom to give to the cause they most believe in, it has also blurred the lines between what is a tax-deductible donation, and what is not. To help determine which donations are deductible, see the center box.
Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.