tax tips — August 29, 2011

Be a Smart Giver - and Get a Little Bit in Return

by Bob Williams

deducting charitable contributionsEven in tough economic times, it makes sense to give money to your favorite charitable organizations. First, it's the right thing to do: many laudable projects would simply not exist without the so-called "small change" of the average donor.

Second, you may be able to get some of that donation back in your pocket. With a little forethought and planning, you can ensure that your donation helps those in need, and helps your tax bill as well.

First, of course, you need to make sure that the organization you're planning to donate to is indeed qualified to receive your money in the eyes of the IRS. To check out any purported charitable organization, you can start by simply asking for their IRS documentation for non-profit organizations. They should be able to show you a copy of their IRS certification, such as a 501(c)(3) or a similar designation. If you intend to claim your donation on your taxes, verbal assurances alone may not be enough if you don't know the organization personally. There are a lot of groups posing as charitable organizations that do not have the proper designation from the IRS.

You can also go here to download Publication 78, the IRS' list of qualifying charitable organizations for the entire U.S. Note, however, this is a BIG file and may not display correctly, especially if you have an older computer.

Another good reason to research before you give is that many non-profit groups had that status revoked by the IRS this year. Some 275,000 organizations lost their tax-free status because they didn't file their required annual reports, and yearly audits could mean more groups could join them in the coming years. So those folks who promise that you can take your donation off your taxes may not have the latest information. The IRS has the complete list of groups that lost their non-profit status this year in this document. You can download the list by state.

Once you've picked where your donation will go, you have some more personal choices to make, not the least of them is whether you'll itemize your deductions. You can only deduct your charitable contributions if you itemize, using Form 1040, Schedule A. And only those contributions actually paid out during the tax year you're filing will count.

In general, you can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. But be mindful that special rules apply to donations of clothing, household items, cars and boats.

If the charity gives something in return for your donation - let's say, tickets to a baseball game, for example - you can only deduct the amount of your contribution that exceeds the fair market value of the item or service received.

We can't stress enough the importance of keeping good records when it comes to taxes, but especially when charitable contributions are involved. For small donations - under $250 - a bank or credit card statement is sufficient. But if you give more than $250 to an organization, you'll need a written acknowledgement from them that includes how much money you gave, and whether any material incentive or premium (like those baseball tickets) was involved. If you donated property, the acknowledgement should include a description of the items and a good-faith estimate of their value.

If you donate items worth $500 or more, you'll need to complete Form 8283, Noncash Charitable Contributions, and attach it to your return. If the property is worth more than $5,000 you generally must get the property appraised and complete Section B of Form 8283 with your return.

If you're not sure how much your potentially donated property is worth, check out IRS Publication 561, Determining the Value of Donated Property. It may not help you get more at the next church rummage sale, but it might put more coins in your pocket when you get your refund from the IRS.

And that's a gift that keeps on giving.

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