November 15, 2007 12:00 am

Getting Your Last Minute Charitable Contributions Right

You may have a generous spirit and the means to help your favorite nonprofit organization, but unless you follow tax rules you won't enjoy tax breaks to which you might otherwise be entitled.

Cash contributions

If you toss money into the Salvation Army holiday kettle or the weekly collection plate at your place of worship, you can't deduct these donations as you could have in the past. The tax law for 2007 now requires you to have a written acknowledgment from the charity or a bank statement to support the donation for contributions of any amount-there's no leeway for small donations. Without written proof, no deduction is allowed.

Options: Only give donations by check to create the necessary paper trail. When giving cash, ask the charity for a written confirmation of the donation. For example, some churches use envelopes to track weekly donations and furnish monthly statements to donors. For donations via payroll withholding, be sure to retain your W-2 form showing the contributions.

Last minute donations

If December seems to slip away, you have until the very last minute to make charitable contributions that can be deductible for 2007. How:

  • Donations by mail. Checks dated in 2007 and mailed by the end of the year are deductible in 2007 even though the charities receive them in 2008. To rely on this rule there must be adequate funds in the account to cover the donations. Postdated checks with a 2008 date are not deductible until 2008.
  • Donations by credit card. Donations charged to a major credit card are deductible when charged (in 2007), even though the credit card bill is not paid until 2008.

Caution: Donations made through a pay-by-phone bank account are not deductible until the payment date shown on the bank statement, so don't wait until the last minute to make contributions through this method.

IRA transfers to charity

If you are at least 70-1/2 years old by the end of 2007, you can benefit your favorite charity while obtaining tax advantage. You can make a direct transfer of IRA funds-up to a maximum of $100,000 for the year-to a public charity. No portion of the transfer is reported as income (as would be the case if the funds were withdrawn from the IRA). The tax benefits:

  • No income is reported for the transfer. This can include annual required minimum distributions necessary to avoid tax penalty.
  • You reduce your adjusted gross income (AGI). Since the transfer is not taken into income (including any required minimum distribution), your AGI is minimized. This can have the added effect of increasing other tax breaks that depend on AGI. For example, lower AGI means a greater medical expense deduction. It can also mean that less Social Security benefits are taken into income.

Note: You cannot claim a charitable contribution deduction for the transfer.

Caution: This IRA donation break applies only for 2007 (unless Congress extends it). If you want to use IRA funds for charity, do it this year while you can.

Contributions of used clothing and household items

The holiday season is a time for coat drives and other donations of clothing and household items (e.g., linens, appliances, and electronics) to help the needy. Giving away these items can benefit a charity while giving you a deduction for their fair market value (typically what might be realized if they had been sold at a garage sale or thrift shop).

No deduction generally is allowed for items unless they are in good used condition or better. How to prove your donations:

  • Create a list of the items you are donating.
  • Take a digital photo to show their condition.

Note: If any single item is valued over $500, you can deduct its value regardless of condition as long as you have a qualified appraisal for it and attach the appraisal to your return.

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Tax Glossary

Patronage dividend

A taxable distribution made by a cooperative to its members or patrons.

More terms