The theme of the Christmas carol that inspired The 12 Tax Tips of Christmas is perfect for today's topic. In the season of giving we're looking at giving to nonprofits.
In addition to just making you feel good for helping out, charitable donations can provide tax benefits for folks who itemize. Claiming these gifts on Schedule A can help you cut down on your taxable income. Less income generally means a smaller tax bill.
You can give cash, which to the IRS also means charged donations. As long as you make the credit card gift by Dec. 31, even if you pay your account's bill in January the donation counts for deduction purposes in the year it was made.
You also can give property, such as clothing that no longer fits (which could happen to a lot of us after all the holiday goodies we've been eating!) or household goods.
Just make sure they are in good or better shape. This requirement was instituted several years ago because too many folks were essentially using Goodwill, the Salvation Army and similar groups as dumping groups for crap. Not only does that violate the spirit of the season, it now violates tax law!
Got a jalopy you don't want. Many groups take vehicle donations, although there are more requirements here, too. Again, the car deduction changes were made because some folks over-valued the vehicles they donated.
Or if in reassessing your portfolio, as mentioned in Year-end Money Moves Part 2: Investments, you found an appreciated stock no longer fits your investment goals, many charities will accept that gift. You get to claim the asset's value as your deduction and you don't owe capital gains on that amount.
Regardless of how or what you give, make sure of three things.
First, the recipient group must be IRS qualified. The organization should give you info detailing its tax-exempt status. If it can't or won't, that's a good indication you should do some investigating before giving. You also can check IRS Publication 78, which is searchable online.
Second, get the gifts to your favorite charities by Dec. 31 for them to count on this year's return.
Third, get a receipt. It doesn't matter if you gave $1 or $1,000. You don't have to send the gift documentation to the IRS with your return. But if an auditor asks, you'll need to show that paperwork or your deduction could be automatically disallowed.
- The 12 Tax Tips of Christmas: #1 Sell Assets
- The 12 Tax Tips of Christmas: #2 Improve Your Home
- The 12 Tax Tips of Christmas: #3 Spend Your FSA
- Keep the giving going
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