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As each year draws to a close, it is the right time to make sure that you have completed all of the charitable giving that you intended throughout the year. While you are considering your last acts of kindness for the year, keep the following in mind:
Charitable gifts are deductible in the year that they are made.
If they are mailed, use the date of mailing. If they are charged to a credit card, the donation is on the date charged, even if the bill arrives and payment is made in the following year. Checks that are written and given this year, but are not processed until next, are still this year’s deductions. So, there’s still plenty of time to make gifts eligible for deduction this year. I have been known to drop checks in the mail on December 31 as I finalize our family’s donations to our favorite charities.
Gifts of stocks can provide an increased benefit to you and your charity – if handled correctly.
A quick example will make the point on this one. If you bought a stock for $10 per share, and it is now valued at $30 per share, you have two choices if your goal is to gift the stock. You can sell the stock, pay capital gain tax, and donate the net amount to the charity. Or (can you tell already that this may be the better option?) you can donate the stock intact as stock to the charity. You receive a deduction equal to the fair market value of the stock at the time of the donation, and the charity receives the full benefit of the value of the stock due to its nonprofit status. Seldom will you find a “win-win” in the tax code, but this rule definitely qualifies.
For monetary gifts, be sure to receive and keep a written confirmation, just in case your friends at the IRS need proof one day that you did, in fact, help your fellow man.
Legitimate charities should send you tax documentation automatically if the contribution is greater than $75. Alternatively, canceled checks, bank records or credit card statements reflecting the donation will suffice. If a donation is part of a purchase from a charity, such as holiday cards or an item from a charity fundraiser, the allowable deduction is the amount paid less the fair market value of the item received. This, too, should be documented at the bottom of the contribution statement.
Donations of household goods or “foodstuffs” are deductible at their value.
For new items, the value is the purchase price (as documented by the receipt that you will put in your tax records). Gently used (“good condition”) items are deductible at their fair market value, usually considered to be significantly below original purchase price. Estimates of value are generally accepted, but the higher the claimed value, the greater the scrutiny placed upon the claimed deduction. An appraisal of the item’s worth, especially if it is valued over $250, is good proof of value. Otherwise, make sure to obtain a receipt from the charity which includes the date, charity name, and a list of donated items.
Consult your tax professional for specific guidance on what you donate and how you can deduct the donation.
As the title implies, your tax professional does this for a living and would rather make life easier on everyone by helping you to make charitable donations that are well-documented and properly gifted. An important note is that taxpayers that file a short-form tax return (1040EZ or 1040A) are selecting the standard deduction, and as such their charitable gifts are not deductible, and instead are entirely altruistic.