Being generous to your favorite charitable organization typically can yield substantial tax benefits to you. There are various types of donations and various requirements to substantiate the gift you choose to give. Are you giving cash or property? Contributions are limited by your AGI (adjusted gross income) between 20 and 50%. (Consult your CPA). Here are some general rules to remember as you prepare for donations:
- Cash donations of less than $250 can be supported by canceled check or credit card receipt, donations in excess of $250 must be substantiated by the charity
- Appreciated property typically provides the most tax savings however proper planning is required
- Understand the differences between ordinary income property and long-term capital gains property during your planning
- Tangible personal property (like art or antiques) is treated for tax deduction purposes based nature of property and the end use by the charity
- Personal property valued at more than $5,000 (except securities) must be supported by a qualified appraisal
- If this property isn’t used by the charity in its tax-exempt function your deduction is limited to your basis in the property
- If the property is related to the charity’s tax-exempt function you can deduct the property’s fair market value
Here are some other key rules to remember for charitable deductions:
- Donation of Services- you may only deduct your out-of-pocket expenses, not the fair market value of your services
- Donating the use of property- No deduction is allowed, because it isnt considered a gift of your interest in the property to the charity
- Driving for charitable purposes- You may deduct only 14 cents for each mile driven related to charity
- Donating a car- The deduction is now limited to what the charity receives when it sells the vehicle unless its used directly by the charity in its tax-exempt function
- Donation of clothing or household goods- they must be in at least “good used condition” to be deductible
- Donating appreciated property to charity is smart because you avoid paying tax on the long-term capital gain you would incur if you sold the property plus you get to donate the fair market value. However, with depreciated property do the opposite, sell it, take the capital loss and then use the charitable deductions.