’Tis the Season for Charitable ContributionsGive Back, Reduce Your Tax Burden
Along with an avalanche of catalogs and holiday greetings from family and friends, you also may find your mailbox flooded with donation requests from charitable organizations. Nonprofit organizations typically ramp up efforts to raise money before the end of the year. There’s a good reason—it’s a great time for taxpayers to donate to charity and receive a tax break in return.
Oklahomans have long been known for their giving spirit. According to a report by the Chronicle of Philanthropy, our state is the 11th most charitable; we give 5.6 percent of our annual discretionary income.
“Year-end charitable contributions can be a win-win situation for both taxpayers and charities,” said Ted Blodgett, CPA/ABV, JD. Blodgett is a partner with Gray Blodgett & Company in Norman, Okla., and president of the Oklahoma Society of Certified Public Accountants (OSCPA). “Remember to allow enough time to make sure the charitable organizations receive your gift before the end of the year. Try to get receipts for all donations, but be extra diligent about getting receipts for contributions more than $250.”
Stick to smart giving strategies.Regardless of whether you’re donating to your favorite charity or giving to a new organization this year, the OSCPA recommends following these tips to ensure everyone benefits from your donation:
- Research first. Only donations to qualified charitable organizations are deductible. If you’re not sure whether an organization is qualified, ask to see its letter from the Internal Revenue Service (IRS.) Many organizations will actually post their letters on their websites. You can search online using IRS Exempt Organizations Select Check at www.irs.gov. Churches, synagogues, temples and mosques are considered de facto charitable organizations and are eligible to receive deductible donations, even if they’re not on the list. Guidestar and Charity Navigator also allow you to learn more about a charitable organization’s tax exempt status.
- Get and keep your receipts. Cash deductions must be substantiated by a bank record (such as a canceled check or credit card receipt, clearly annotated with the name of the charity) or in writing from the organization. The writing must include the date, the amount and the organization that received the donation. You don’t have to submit the receipt with your tax return, but you need to be prepared to show it if you are audited.
- Be an itemizer. To claim charitable deductions on your tax return, you must itemize your deductions on Schedule A of your Federal Form 1040.
- Do the math. If you receive something in exchange for your donation – no matter how big or small – the donation is deductible only for the amount the donation exceeds the value of any goods or services received.
- Document every time you give. Be sure to keep good records of all donations. If you donate non-cash items, you’ll need to be able to substantiate the value of your donation.
- Know your limits. There are limits on the amount of charitable contributions you can deduct. The specific limitations can be fairly complicated, so consult your CPA if you contribute more than 20 percent of your adjusted gross income.
- Keep an eye on the calendar. Donations must be made by the end of the tax year for which you want to claim the deduction. If you put a check dated December 31 in the mail by that day, you're okay. The same goes for donations charged by year's end to your credit card—even if you don't pay the bill until next year.
- Keep your paystubs. If you have money taken directly out of your paycheck for charity, keep a paystub, Form W-2 or other document showing the total amount withheld, along with the pledge card showing the name of the charity.
- Donate appreciated property. Taxpayers can donate appreciated property instead of cash to a charity, which yields double the bang for your buck because an individual can deduct the property's fair market value on the date he or she gives the gift and avoid paying capital gains tax on the appreciation. The deduction of appreciated property is generally limited to 30 percent of adjusted gross income.
A CPA can help.
Wondering how to maximize your year-end charitable donations? A CPA can help you analyze your current situation and determine the best course of action. If you have questions about your taxes and personal financial planning or need help finding assistance, your local CPA can help. Turn to him or her with all your financial questions. For additional financial tips, visit www.KnowWhatCounts.org, where you can sign up for a free e-newsletter, try out financial calculators or ask a CPA a question. Visit www.FindYourCPA.com for a free CPA referral and free 30-minute consultation.