Year End Tax Planning: Giving Tuesday

BOSTON (WBZ-AM) -- We had Black Friday, Cyber Monday yesterday and today is Giving Tuesday which kicks off the off the charitable season, when many focus on their holiday and end-of-year giving.

Making charitable gifts may lower your tax bill but you must itemize to get the deduction. And the IRS has some strict rules.

More to lower your tax bill:

You can only deduct contributions you give to qualified charities. Use the IRS Select Check tool to see if the group you give to is qualified. Remember that you can deduct donations you give to churches, synagogues, temples and government agencies. There is no deduction for any contributions made to a political campaign.

• Cash is much appreciated as a donation but to get the deduction you need to document your contribution. The rules require either a bank record that supports the donation (a cancelled check) or a written statement from the charity that meets tax-law requirements. So, those loose dollars you put in the Salvation Army bucket or the church collection basket can’t be counted as a deduction.
• Make a charitable contribution now using your credit card and you will get the deduction for this year and you’ll pay the bill next year! Use a credit card that pays you a rebate or gives frequent flyer miles or points and it is a win, win. You get the deduction and miles! Most charities are very happy to accept your credit card for donations especially those where individuals ask you to sponsor their walk or ride for charity.
• You cannot take a deduction for the time you volunteer at the food bank or the hospital but you can get a deduction for the mileage driving to the food bank or hospital each week at 14 cents a mile. It’s not very much but that’s not the reason why I show up at the Food Pantry each week.

Give appreciated assets to your favorite charity. The deduction will be the value the day you give it away and the charity can sell and they will have no tax consequences.

• Donate your old car to a charity. Your deduction will be limited to the amount the charity receives for the car when it's sold, not its book value. The charity must provide you with a written acknowledgement within 30 days of the sale of the car. Be sure the charity is legit by checking the IRS website. You can call the IRS at 877-829-5500 to find if the charity is listed as an IRS exempt charity.

An IRA owner, age 70½ or over, can directly transfer, tax-free, up to $100,000 per year to an eligible charity. This option can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributed amounts may be excluded from the IRA owner’s income – resulting in lower taxable income. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.

One more thing: IRS Resources

• Tax Topic 506, Charitable Contributions
• Publication 526, Charitable Contributions.
• Publication 561, Determining the Value of Donated Property
• Form 8283, Noncash Charitable Contributions
• Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes

Five Facts about Charitable Contributions

With the holidays around the corner, many people will be making donations to benefit charitable organizations. However, come tax time, the person who made the donation might also benefit. That’s because taxpayers who donate to a charity may be able to claim a deduction for the donation on their federal tax return.

Here are five facts about charitable donations:

Qualified Charities. A taxpayer must donate to a qualified charity to deduct their contributions. Gifts to individuals, political organizations, or candidates are not deductible. To check the status of a charity, taxpayers can use Exempt Organizations Select Check on IRS.gov.

Itemize Deductions. To deduct charitable contributions, taxpayers must file Form 1040 and itemize their deductions. To do this, taxpayers complete Schedule A, Itemized Deductions. They file this form with their tax return.

Getting Something in Return. Taxpayers may receive something in return for their donation. This includes things such as merchandise, meals, and event tickets. Taxpayers can only deduct the amount of the donation that’s more than the fair market value of the item they received. To figure their deduction, a taxpayer would subtract the value of the item received from the amount of their donation.

Type of Donation. For donations of property instead of cash, a taxpayer can only deduct the fair market value of the donated item. Fair market value is generally the price they would get if they sold the item on the open market. If they donate used clothing and household items, those items generally must be in good condition. Special rules apply to certain types of property donations, such as cars and boats.

Donations of $250 or More. If a taxpayer donates $250 or more in cash or goods, they must have a written receipt from the charity. The statement must show: • The amount of the donation. • A description of any property given. • Whether the taxpayer received any goods or services in exchange for their gift, and, if so, must provide a description and good faith estimate of the value of those goods or services.

Taxpayers can also use the Interactive Tax Assistant, Can I Deduct my Charitable Contributions? This tool helps determine if charitable contribution is deductible.