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Before the Holidays, Get Those Charitable
Donations Lined Up
There's a special sinking feeling as you approach Dec. 31 and
realize you've done no tax planning whatsoever. That includes
big issues like end-of-the-year investment decisions, and the
smaller ones — like that stuff you no longer use piling up in
the basement.
Charitable giving is an important part of tax planning at
yearend, so let's look at the cash and non-cash aspects of
giving. It makes sense to contact a tax expert or financial
planner to talk about what giving makes sense for you:
You have to itemize. Only individual taxpayers who
itemize their deductions on Schedule A can claim a deduction for
charitable contributions. This deduction is not available to
people who choose the standard deduction, including anyone who
files a short form (1040A or 1040EZ).
Get out the checkbook. Uncle Sam likes a record. To
deduct any charitable donation of money, a taxpayer must have a
bank record or a written communication from the charity showing
the name of the charity and the date and amount of the
contribution — and it definitely helps to have both. Bank
records mean canceled checks, bank or credit union statements
and credit card statements. Bank or credit union statements
should show the name of the charity and the date and amount
paid. Credit card statements should show the name of the charity
and the transaction posting date. For payroll deductions, the
taxpayer should retain a pay stub, Form W-2 wage statement or
other document furnished by the employer showing the total
amount withheld for charity, along with the pledge card showing
the name of the charity. If you remember the IRS being satisfied
with personal bank registers or scribbled notes to document the
donation, they're not anymore.
There are charities, and then there are charities. You
need to make sure that organizations are qualified to make
tax-deductible contributions to. IRS Publication 78, available
online and at many public libraries, lists most organizations
that are qualified to receive deductible contributions, but
there's an online version too. Just go to www.IRS.gov and type in
"Search for Charities." One key exception — it's
important to note that churches, synagogues, temples, mosques
and government agencies are eligible to receive deductible
donations, even though they often are not listed in Publication
78.
Giving away property. If you give away property,
including clothing and household items, get a receipt that
includes a description of the donated property. If a donation is
left at a charity's unattended drop site, keep a written record
of the donation that includes a description of the property and
its condition. For any kind of vehicle, boat or airplane, the
deduction is now limited to the gross proceeds from its sale.
This rule applies if the claimed value of the vehicle is more
than $500. Form 1098-C, or a similar statement, must be provided
to the donor by the organization and attached to the donor's tax
return.
You can't deduct junk. Under a provision of the 2006
Pension Protection Act, contributions of physical items must be
in good used condition or better to qualify for a deduction.
That means that you can't deduct ripped or discolored clothing
or appliances that don't work. If you donate non-cash property
that is valued at more than $500, you need to report to the IRS
how and when you acquired the property and your cost basis. You
must file Form 8283, Non cash Charitable Contributions, for all
donations of property valued at more than $500.
Use that digital camera. If you're ever audited, it
helps to have photographs or video of these items, and
obviously, demand a detailed receipt.
Learn rules about giving away appreciated securities.
This is where a financial planner or tax expert would come in
handy. When you donate stocks or mutual fund shares you have
held for more than one year, generally you may deduct the
stocks' current fair market value. Additionally, you avoid
paying capital gains taxes on the appreciated value.
November 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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