Tax Breaks for the Generous

Whether donating cash, clothes or a car, don’t forget to get a receipt.

Always dependent on the kindness of strangers, charities are particularly hard hit in today’s tough economy because many donors are tightening their belts.

If you are able to open your heart and wallet this year, be sure you make the most of your gift by getting a receipt for every donation. And remember, to claim a charitable contribution on your 2011 tax return, you must itemize your deductions, and you must make your contributions by December 31. If you pledged $500 in September but paid the charity only $200 by December 31, for example, your 2011 deduction would be $200.

If you donate cash, regardless of the amount, you’ll need a paper record -- a bank record, such as a canceled check, a credit-card statement or a payroll check stub -- or a written receipt from the charity. For donations of $250 or more, you have to get a written acknowledgment from the charity containing the date, amount of donation and donor’s name. The law is clear: No paperwork, no deduction.

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If your contributions entitled you to receive merchandise or services in return, such as admission to a charity event, you can deduct only the amount by which your gift exceeds the fair market value of the benefit received.

When you’re cleaning out your closets in search of year-end donations, keep in mind that used clothing and household items must be in good condition to qualify for a deduction. To deduct contributions valued at $500 or more, you must complete Form 8283 and attach it to your tax return that you’ll file next spring. Single items valued at $5,000 or more, regardless of condition, require a written appraisal.

In most cases, tax deductions for donated cars, trucks and boats are limited to the amount the charity receives from the sale of the vehicle; the charity is supposed to send you a form showing the amount. In most cases, that’s far less than the Blue Book value, which was the standard benchmark that most taxpayers used in the past to estimate the value of their donation -- that is, until Congress decided a few years ago that too many clunkers were being claimed as if they were cream puffs. There is an exception that allows you to deduct the estimated value of the vehicle: If the organization regularly uses the vehicle to perform charitable activities, such as delivering meals, or if it gives or sells it to someone in need for substantially less than it is worth, you can deduct the car’s fair market value.

Mary Beth Franklin
Senior Editor, Kiplinger's Personal Finance