Get Tax Breaks for Charitable Giving
You can do good and trim your tax bill at the same time.
Charity fund-raising reaches a fever pitch in the holiday season -- and your mailbox will likely be stuffed with appeals for help. Before you open your wallet, you need to understand the complex IRS record-keeping and other rules.
Also, make sure the charity is eligible to receive tax-deductible contributions. Search the IRS database of exempt organizations at https://apps.irs.gov/app/eos. (In the search field, put quote marks around the name of the charity.)
Beat the clock. If you make donations by check, pop them in the mail at least a couple of days before December 31, to give the Postal Service time to give them a 2015 postmark. A donation made by credit card is deductible in the year the charge is incurred, even if you don't pay the card bill until the following year.
You can make credit card contributions by going to the Web sites of the individual nonprofits, but you can save time with a one-stop giving site. American Express cardholders, for example, can use its Members Give service to make contributions to any of one million charities. The service sends a confirmation to your e-mail, and you can keep track of your donations at tax time. AmEx deducts a 2.25% processing fee, which the company notes is the same fee a charity would pay if you give directly using the card.
Donors who don't have time to choose charities just yet can set up a donor-advised fund. You get a tax deduction on the date you give the money to the fund, but you can select the charities to support in the future. Charles Schwab and Fidelity administer two of the largest donor-advised funds, and many community foundations operate funds as well.
Give away stuff. The IRS requires that any donations of household items, old clothing and furniture be in "good condition or better." You can get valuations of used items at www.goodwill.org or www.salvationarmyusa.org. Your guide on the good-condition rule: Ask yourself if you'd give the item to a friend or relative.
You can get a deduction of a single item that is not in good condition if the item is valued at more than $500 by attaching an appraisal and Form 8283 with the return. For example, a vintage designer wedding gown donated to a local museum could meet the test.
Keep good records. You must keep records for all donations, but the kind of documentation will depend on the amount of contributions and whether they are cash or noncash.
You cannot deduct a cash contribution unless you have a canceled check, bank statement, credit card statement or receipt from the organization. For each cash donation of $250 or more, you must have a written acknowledgement from the charity showing the amount and date of the contribution. The document also must note whether you received any goods or services in return for your donation.
For noncash contributions, the records will differ depending on whether a deduction for a contribution is less than $250, between $250 and $500, more than $500 and up to $5,000, or more than $5,000. For a small contribution, you must keep a receipt from the charity; for a donation worth more than $5,000, you must obtain an appraisal. (For more details, read IRS Publication 526, Charitable Contributions.)
Deduct out-of-pocket expenses. It's possible that you will step up your volunteer activities in the last few weeks of the year. You cannot deduct the value of your time, but you may be able to write off some of your expenses, such as the cost of supplies you bought to bake pies for a fund-raising event, for example.
You must keep records of all your expenses. If you spent $250 or more on a single expense -- perhaps an airline ticket to a charitable event -- you must receive an acknowledgement from the charity.
If you use your car for charitable purposes, you can deduct 14 cents a mile. Your written records must include the name of the organization you are helping and the dates you used your car for charitable purposes.