9 Tips for The Smart Charitable Giver This Season
The holiday season is also the high season for charitable giving. As people make donations to their favorite organizations, those who wish to report their contributions at tax time should first familiarize themselves with the following nine helpful rules of charitable giving.
1. Verify the Charitable Organization’s Legitimacy
Perhaps the most important rule taxpayers should know about charitable giving is that the recipient must be a legitimate 501(c)(3) non-profit organization. Therefore, individuals must verify the organization’s legitimacy prior to making a donation. The IRS also recognizes donations to churches, synagogues, mosques, and temples. Taxpayers may use the IRS Select Check tool to determine whether the organization to which they would like to donate qualifies.
2. Request a Receipt and Save It
Taxpayers should retain proof of their charitable donations. Most organizations will provide a receipt. However, in some cases, a cancelled check or credit card statement may be sufficient documentation. If a donation exceeds $250, the taxpayer is required to request and retain a written acknowledgement from the organization.
3. Know the Deadline
Many taxpayers are relieved to know that the deadline for charitable donations for the present year is December 31st. Those who wish to receive the tax break for their donation, but would like to have more time to pay may choose to use a credit card to donate by December 31st and pay their balance in the new year. Donors should note, however, that organizations often charge a processing fee for credit card donations. Therefore, slightly less of the donation amount may be used for its intended charitable purpose if a credit card is used.
4. Donor-Advised Funds
Those who are unsure of exactly how they would like their charitable donation to be allocated may consider a donor-advised fund. The taxpayer would simply need to open an account in the fund and deposit cash, securities, or other financial instruments. The donor surrenders ownership over deposits that are made into the account; however, he or she will maintain administrative control. The advantage of a donor-advised fund is that the donor may deduct the entire amount contributed to the account in 2014; however, he or she may wait until a later date to decide how the funds will be distributed. A donor-advised fund may be opened with as little as $5,000.
5. Taxpayers Must Itemize Deductions
Those who wish to claim the standard deduction, instead of itemizing their deductions, may not claim a deduction for a charitable contribution. For some people, simply claiming the standard deduction is advantageous over itemizing; therefore, it is better that they forego attempting to deduct their charitable contributions. Individuals who are blind or over the age of 65 will generally have a higher standard deduction. Conversely, there are also taxpayers who are precluded from claiming the standard deduction. Married taxpayers who file separately, and one spouse has already decided to itemize are included in this category. These individuals should claim a deduction for their charitable contributions as they are required to itemize by default.
6. It is Possible to Qualify for Two Tax Breaks
In addition to a tax deduction, taxpayers may reap a second tax benefit when they donate highly appreciated stocks, bonds, or mutual funds. While capital gains are typically taxable, the taxpayer will not owe capital gains taxes in this case. Furthermore, he or she may deduct the full market value of the investment as a charitable gift.
7. Consider the Value of Donated Items
Donors should avoid attempting to claim a deduction for donating items that would be considered junk. When donating clothes and household items, the taxpayer may deduct the fair market value if the items are in good condition. When donating items that are of high value, the donor should take photo for documentation as it is the taxpayers responsibility to prove the value of the item. The Salvation Army and Goodwill have published guides to help donors determine the value of items they wish to donate. The “ItsDeductible” app may also be helpful.
8. Donating a Car
Car owners who wish to donate a vehicle should be aware that the Kelly Blue Book value does not necessarily determine the amount of their tax deduction. Generally, taxpayers may deduct no more than the amount the non-profit organization is able to receive when selling the car. When donating cars and other property that is worth more than $500, IRS Form 8283 must also be filed.
9. Get Money for Miles Driven
Those who donate their time may be delighted to know that the IRS also allows deductions for miles driven in the course of performing charitable work. Taxpayers may deduct 14 cents per mile. Similar to other charitable donations, it is important to document mileage for the purpose of record-keeping.
While it is the spirit of generosity that matters most when giving, following tax guidelines closely can help charitable contributors save money at tax time. In the end, the IRS has the final say in whether a deduction is legitimate. Therefore, it pays to consult a qualified tax professional or review IRS publications prior to making a sizable donation.
Hopefully, this article provided some quality insights. As a side note, when it comes to your tax filing efforts to take advantage of these ideas for yourself and/or clients, consider e-filing this season. When looking for a solution to file 1099 forms online, I suggest you look at an industry leader like eFile4Biz.com.
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