With the holiday season upon us, many individuals take the time to give to those who are less fortunate. All giving is valuable, but from a tax perspective, not all giving is rewarded with a tax write-off. Here is what you need to know for your giving this year.
1. You must itemize to deduct any charitable giving.
You can be as generous as you want, but a tax deduction is limited to those who itemize personal deductions and forgo the standard deduction amount.
2. Deductions are allowed only for IRS-approved charities.
You cannot claim a deduction for money you give directly to needy individuals, no matter how worthy their need or how generous your gift. Check to see that a charity is IRS-approved at www.irs.gov/Charities-&-Non-Profits/Search-for-Charities.
3. Annual deductions are limited with respect to adjusted gross income.
You cannot deduct cash donations in excess of 50% of your adjusted gross income (AGI), although very few individuals are that generous, or donations of long-term property in excess of 30% of AGI. Unused deductions can be carried forward for up to 5 years.
4. Deductions require substantiation.
Your word, or even a canceled check, isn’t good enough. You need to follow special substantiation requirements. For example, no deduction can be claimed for money you put in the red Salvation Army kettle, because it is unsubstantiated. If you donate $250 or more, you must obtain a written acknowledgment from the organization, specifying your gift and stating that no goods or services were received in exchange. Special acknowledgments are needed for donations of vehicles.
5. Some gifts require appraisals.
If you donate property (a single item or a collection) valued at more than $5,000, you need a qualified appraisal. This must be done by someone who has the credentials to be a qualified appraiser.
6. Deductions of appreciated property provide a double tax benefit.
If you donate appreciated property that you’ve owned for more than a year, such as stock, you can deduct the value of the property on the date of the gift. What’s more, you don’t have to report any capital gain on the appreciation; it effectively becomes tax free to you.
7. Cash donations made by year-end are deductible now even if received in the new year.
Say you mail a check to your favorite charity on December 31. You can deduct that amount on your 2012 return even though the charity does not receive the gift until 2013. Similarly, if you charge a donation to your credit card late in the year, it’s deductible in 2012 even though you paid the credit card bill in 2013.
8. Out-of-pocket expenses are deductible.
If you spend any money helping a charity, such as supplies to help your child’s school activities (not costs for benefiting your child but costs to help the school), you can deduct them. You cannot deduct the value of your time devoted to charitable activities.
9. Your car expenses are deductible at 14¢ per mile.
If you deliver meals to homebound individuals in your own car or use your car for other charitable purposes, you can deduct your mileage at the rate of 14¢ per mile. Be sure to keep a record of the mileage, including the date and purpose of each charitable trip.
10. Some legitimate donations don’t produce deductions.
Usually, when you give to a recognized charity, the gift is tax deductible. However, there are 2 exceptions:
For 2006 (the most recent year for statistics), individuals who itemized deductions reported $52.6 billion in noncash donations (up 14.1% over the prior year). The largest type of noncash donations was corporate stock (49.1%), followed by clothing (13.4%) and household items (8.2%). Donations of mutual fund shares increased by 44.2%.
Summer 2009 Statistics of Income Bulletin (www.irs.gov/pub/irs-soi/09sumbulindcontri06.pdf)View all factoids