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CHARITABLE GIVING
Getting the Tax Benefit You Deserve
A tax deduction isn't foremost in most donors' minds, but it
does help some people to open their wallets wider—and everyone should take
full advantage of the tax benefits available to them as a result of their
generosity. If you intend to itemize and claim a deduction, keep a few things
in mind:
- Make sure the organization is tax-exempt under section
501(c)(3) of the tax code.
You can check an organization's tax status by visiting websites such as http://apps.irs.gov/app/pub78 or www.guidestar.org. See
Charitable Giving Before You Give for further information.
- For contributions under $250, make sure to get a receipt,
or keep your cancelled check.
- For larger contributions of $250 or more:
If you're making a contribution of $250 or more and aren't receiving anything
of value from the charity in return, you need to obtain a letter from the charity
acknowledging the gift and confirming that it wasn't made in exchange for something
valuable. A cancelled check is NOT enough!
If you're making a donation of $75 or more and are receiving something
from the charity in return—such as a meal, service, or product—obtain a
letter indicating how much you donated and the value of what you received in return.
You can only deduct the amount of your gift in excess of what you got in return.
If you're donating property worth more than $5,000, you need to have it appraised.
- There are additional rules for non-cash contributions.
If you give a used car or truck to a charity, be advised that Congress recently changed the rules governing your deduction. If the charity uses the vehicle in its programs or makes substantial improvements to it (as in an auto shop vocational program), you can still deduct its full value. But if the charity merely sells the car (as is usually the case), your deduction will be limited to the amount it receives from the sale. The charity is required to report to you the amount it receives.
If you donate used clothing to a charitable organization, you can deduct the value of the items donated. The value of used clothing may be much less than the price you paid when the clothes were new. The price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops, is a good indication of the clothing’s value. The same rules generally apply to used household goods like furniture, appliances or linens.
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Donations of personal services, rent-free use of office
space, and interest-free loans aren't tax-deductible.
(Of course, they're still needed and appreciated!)
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. In general, 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. See the Special Rules as of 2005 below.
- Keep in mind the limits for charitable deductions.
If you give cash, you generally cannot take deductions for charitable
contributions in excess of 50% of your "adjusted gross income" (i.e., the amount
at the bottom of the first page of an itemized federal tax return). If you give
property, your deductions for property donations usually cannot exceed 30% of your
"adjusted gross income." See Special Rules of 2005 below.
Different limitations apply to corporate donations. Generally, corporations
can deduct gifts up to a total of 10% of their taxable income. See Special Rules of 2005 below.
- Maintain records.
Make sure that you retain all receipts and required documentation of your charitable contributions for at least three years (many tax advisers recommend keeping all tax records for at least seven years). Be sure to log out-of-pocket expenses for charitable work such as: mileage, parking fees, tolls, bus or taxi fares. Record the name of the charity, the date of the expense and the amount.
- Talk to a tax professional.
If you're planning to make a substantial donation of cash or property, be sure
to talk to a tax professional—a lawyer, accountant, or enrolled agent—to
determine how it will affect your taxes.
- Special Rules as of 2005.
For individuals who make cash contributions made in the last four months of 2005 (after Hurricane Katrina), the standard limit – 50% of your "adjusted gross income" – is raised to 100%, even for contributions unrelated to Katrina relief efforts.
For corporations that make cash donations in the last four months the standard limit – 10% of its taxable income – is raised to 100%, provided such donations are made to relief efforts for Hurricane Katrina.
If you drive your car or truck (but not your boat) as a volunteer for a charity solely for Hurricane Katrina relief work, the allowance is 34 cents per mile through the end of the year.
If you provide rent-free housing to Hurricane Katrina evacuees for at least 60 consecutive days, you may claim a special $500 tax deduction (though it is not a charitable deduction) for each evacuee residing in your home, up to a total of four evacuees. In other words, the deduction is capped at $2,000. To qualify, an evacuee cannot be your spouse or dependent (such as your child or disabled parent), but could be a nondependent cousin, aunt or other relative. The deduction can be claimed in either 2005 or 2006, but cannot be claimed in both years with respect to the same evacuee.
Through December 31, 2006, employers and employees can receive special benefits with leave-based donation programs used to support Hurricane Katrina relief efforts. Here’s how it works. Employees donate their unused vacation, sick or personal leave back to their employers. In turn, employers make cash contributions (based on the value of the donated leave) to charities providing Hurricane Katrina relief. Donated leave is excluded from employees’ income. Employers may deduct the cash payments made to the charities.
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