What does giving to charity mean to you? Perhaps you think of dropping your spare change into a collection for a specific cause or placing a few dollars into a Salvation Army kettle during the holidays. Maybe you’re trying to decide whether you should have a garage sale or just give all that stuff collecting dust in various parts of your house away to your favorite charity.
The greatest benefit of charitable giving is knowing that you’ve helped make a difference in the lives of others. Charitable giving can also provide great tax breaks, if you know who to give to, how to give and how to properly document what you’ve donated.
Make a Wise Choice
The first step is to decide which charity you wish to support. If you do a little research, you’ll soon find that there are thousands of charitable organizations to choose from, supporting such causes as environmental protection, curing illness, or improving the lives of children. Start by deciding what’s most important to you.
If you want to claim a tax deduction for your gift, you’ll need to make sure that you’re dealing with a registered charity to satisfy IRS rules. You can begin by contacting your local charity registration office. Your local Better Business Bureau (BBB) can also provide information on charities. The BBB Wise Giving Alliance provides independent evaluations of popular charities. These reports are available online at www.give.org.
Follow the Rules for Giving
You’re free to give as often and as much to charity as you like. However, you’ll need to know and follow the IRS rules on charitable giving and keep records of your gifts in order to claim tax deductions. Monetary contributions are the easiest to report and document. Always pay by check and make the check payable directly to the charity, not to the person soliciting the contribution or to a donation collection agency. Ask for a receipt and save it along with your canceled check and your bank account statements.
If your contribution exceeds $250 in value, either in cash, certain property, or out-of-pocket expenses that were a result of your volunteer work, you will need to have a written description of your gift. This description must contain an acknowledgement from the charity of your contribution, a description of noncash items donated, a statement of whether the charity provided goods or services in exchange for the donation, and — if goods or services were provided — a good-faith estimate of their value. If you donated property valued at more than $5,000 you must get a qualified written appraisal.
Donating Used Cars
In recent years, it has become popular to donate used cars to charitable organizations. This allows you to deduct the fair market value of the car at the time of the donation from your taxes. Depending on the car’s condition, the value of the tax deduction may be higher than what you’d get if you tried to sell the car. However, some car donation program operators have mistakenly suggested that donors can take as a deduction the full value listed in an established used car pricing guide.
The tax law, however, allows a deduction for only the fair market value of the car. Fair market value takes into account not only the year, the model and the mileage of the car, but also the local market and the vehicle’s condition. As a result, the fair market value of the taxpayer’s car may be substantially different than the average price listed in an established used car guide.
The following organizations accept donations of used cars:
Car Donation Charities (www.cardonationcharities.org) offers tax tips and a donation form on their Web site. This organization will pick up your car anywhere in the United States except Alaska, Hawaii, and Michigan.
America’s Car Donation Charities Center (www.donateacar.com) offers an online donation form. Choose from a long list of charities that will benefit from the proceeds of your donated vehicle.
To declare charitable gifts of certain non cash items worth more than $500 (such as used clothing or furniture), you must supply cost and purchase information for the items donated. Items such as computers and clothing are subject to depreciation over time, so you won’t be able to declare your purchase price as a deduction. Time spent volunteering typically isn’t deductible; however, expenses associated with volunteering, such as transportation and materials, are deductible.
Find more help with donations in IRS Publication 526, Charitable Contributions and Publication 561, Determining the Value of Donated Property, will answer many of the questions you may have.
Charitable donations are an excellent way to reduce your taxes and make a difference in the lives of others. For specific advice and additional tax strategies related to charitable giving, call your tax professional.
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