As I start my year-end tax planning, an important line item is our family's charitable giving. We want to be mindful of sharing what we have with the less fortunate, but we also want to make wise decisions. We consider charitable giving just as we would any other expense line in our family budget.
Give to Who You Know
Just as we wouldn't buy a purse from the back of some guy's trunk in a parking lot, so, too, we do not give contributions to unfamiliar charities. This has become especially important this year as we want to help those who have been affected by Hurricane Sandy. Unfortunately, when major disasters strike, so do scam artists and thieves. Anyone can create a website or a page on a social networking site. In order to make sure the money we do have to give goes to a legitimate cause, we check the IRS website, even for those charities that "sound" on the up and up.
Tax Deductions for Charitable Gifts
In order to ensure that our donations are tax deductible, we not only check the IRS website, but we also make our donations by check or credit card so we have evidence of the gift. If we donate personal items, we always make sure to get an itemized receipt which includes the condition of the item. The IRS will often disallow donations of personal items if they are in less than good condition.
If you are thinking that taking a tax deduction taints the charitable gift, look at it this way. If we have $1,000 to donate, we can increase that donation to $1,389 if the donation is tax deductible. With a 28% tax rate, we will save $389 in taxes, allowing us to give the additional amount.
You must be able to itemize to take advantage of the tax deduction for charitable gifts. Gifts are also only deductible in the year donated, so all gifts must be given before December 31 in order to deduct them on this year's return. You can buy a little time by mailing the check or making the payment on a credit card on the 31st. It is then deductible this year even if the payment is not actually made until 2013.
In Kind Donations
In recent years, cash has been tight but giving is still a priority in our household. An option we have found is to give securities directly to the charitable organization rather than cashing the stock in and donating the cash. We can deduct the market value of the stock on the day we donate it, and we do not have to pay capital gains tax on any stocks we owned for more than one year. The charity can sell the stock tax-free as, if they are a legitimate IRS-registered charity, they are a tax-exempt entity.
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