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Things to Know About Year-End Planning for Charitable Deductions

Making a donation

  • Don’t procrastinate! If you make your contribution before the New Year begins, you will realize the tax benefit on your 2005 return, which is due April 15, 2006. If your contribution isn’t made until 2006, you won’t realize the benefit until you pay your 2006 taxes in 2007.
  • Make sure that your contribution goes to a qualified charity, or it will not be deductible. For a searchable list of qualified charities, visit the IRS website at http://apps.irs.gov/app/pub78.
  • Houses of religious worship such as churches, synagogues, mosques and temples, are not required to apply to the IRS to be qualified as charities, so a contribution to such an organization will generally be deductible even if it does not appear on the IRS list.
  • The rules governing deductions for donating a used car or truck changed for 2005. If the charity you donated the car or truck to uses the vehicle in its program or makes substantial improvements to it – such as in an auto shop vocational program – you can still deduct its full value. But if the charity just sells the car, which is what usually happens, your may deduct only the amount the charity realizes from the sale. The charity is required to tell you the amount it realizes.
  • If you have securities that have increased in value, think about donating them instead of contributing the same amount by check or credit card. Not only may you deduct the full fair market value of the stock (the average of the high and low on the date you make the contribution), but you also avoid the capital gains tax you would incur if you sold the stock.

Deducting a donation

  • A charitable deduction is available for 2005 only if the contribution is paid within the year 2005, and it is your responsibility to make sure it’s clear the payment met the deadline.
  • A special rule says that if you send a check through the mail you may deduct it on your 2005 taxes so long as the envelope is postmarked in 2005. It is not certain that that rule extends to other carriers, such as FedEx.
  • You may deduct a contribution charged to your credit card before year end even if the account isn’t paid until you receive the statement in January.
  • You’ll need a written receipt for any contribution of $250 or more.
  • You must have the receipt in hand by the time you file your 2005 return.
  • The receipt must state whether you got anything in return. You may deduct only the amount of your contribution that exceeds the value of anything you received.
  • You will need an appraisal if you contribute something worth more than $5,000, other than publicly traded stock.
  • In general, deductions for cash contributions for 2005 can’t total more that half of your adjusted gross income. A lower limit – 30% – applies for noncash contributions such as securities, cars and real estate.
  • The Hurricane Effect: A special rule applies for 2005 to cash contributions in the last four months of the year (i.e., after Hurricane Katrina) to most charities other than donor-advised funds. For that period of time, the limit is raised to 100%, even for contributions not related to Katrina relief efforts.
  • While your time and skills have immense value to any charity, you generally cannot deduct the value of services that you perform.
  • You may deduct the out of pocket expenses that you incur in performing volunteer services for a charity, though, such as a mileage allowance for driving your car.
  • If you drive your car or truck in performing volunteer charitable work, you are entitled to deduct a mileage allowance of 14 cents per mile.
  • The Hurricane Effect: If you drive your car or truck as a volunteer for a charity solely for Hurricane Katrina relief work, the allowance is 34 cents per mile through the end of 2005.
  • The Hurricane Effect: If you have housed continuously for 60 days an individual or family displaced by Hurricane Katrina you may be eligible for a $500 deduction per individual (Section 302(c)(3) of KETRA).
  • The Hurricane Effect: Those affected by the Hurricane may be eligible for tax relief detailed in the Katrina Emergency Tax Relief Act (KETRA).For more information, visit: http://waysandmeans.house.gov/ResourceKits.asp?section=2159

More Information

Final Note

  • Don’t wait till the last minute! If you want to be sure your contribution can be deducted on your 2005 taxes, take care of it early so you don’t have to worry about unexpected problems that may delay your contribution. This is particularly important someone else is involved in completing your gift, such as your broker or your financial adviser.