Tuesday, December 20, 2016

End of the Year Charity Check: Make Sure You Read These 7 Tax Tips Before You Donate Anything

Are you contributing to an organization that's actually eligible to get deductible contributions? It may be better to give than receive, but it's smarter to be tax efficient, too.



It certainly is the season for parties, giving, and spending way too much money on the people you love, right? Who wants to think about taxes during the holiday season?

Let me give you a compelling reason: possibly thousands of dollars saved with 7 simple charitable tax tips for your end-of-the-year planning.

1. Donating to a Charity. First things first. You need to make sure you're donating to an organization that's actually eligible to receive deductible contributions. Exempt Organization Select Check, is an online database that can show you if a non-profit is legitimate in the eyes of the IRS.

Remember, you can't deduct donations to individuals, political or foreign organizations. Social clubs don't count, either. On the other hand, churches, synagogues, temples, mosques and government agencies--yes, you could even donate to the IRS, strange as that sounds-- are eligible to receive deductible donations, even if they are not listed in the database.

2. A Record of Giving. In your charitable giving, it's not just the thought that counts. To deduct any donation of your hard-earned dollars, regardless of the amount, you need to have a bank record or a written communication from the charity including the organization's name and amount of the donation. Bank records include canceled checks, bank or credit union statements, and credit card statements. These should show the name of the charity, the date and the amount donated.

Your credit card statements should also show the transaction posting date. Donations charged to a card before the end of 2016, count for this year. This is true even if the credit card bill isn't paid until 2017. Also, checks count for 2016 as long as they are mailed before the end of the year.

3. Clothing and Other Household Items. For all donations of property, including clothing and household items, get a receipt that includes the name of the charity, date of the contribution and a description of the donated property. Household items include furniture, furnishings, electronics, appliances and linens and, to be tax-deductible, generally need to be in good condition.

If you leave your donation at a charity's unattended drop site, keep a written record of what you gave, as well as the fair market value of the property (at the time of the donation) and how you came up with that number. Additional rules apply for a contribution of $250 or more, so this is where your tax advisor can help you.

4. Driving Back and Forth in Service of Your Charity Counts. This is something many of our clients forget or just don't know about. You can deduct your mileage or actual costs of transportation to and from charitable events. The bad news is you can't deduct your time, but if you are a volunteer in an official capacity, you can deduct your out-of-pocket expenses and volunteer mileage at 14 cents per mile. Remember to keep records.

5. To Itemize or Not to Itemize? How you fill out a form can save you thousands of dollars. Only individuals who itemize their deductions on a Form 1040 Schedule A can claim deductions for charitable contributions. This deduction isn't available if you choose the standard deduction or file a short form (Form 1040A or 1040EZ). This is where a tax pro and basic math skills are helpful. You'll only have a tax savings if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction.

5. Tax-Free Charitable Distributions from Your IRA. A congressional provision allows taxpayers who are 70½ and older to make tax-free charitable distributions from IRAs. This can work to your advantage in a couple of ways, saving you more than a regular donation.

First, IRA distributions for charitable giving aren't included in your income, effectively lowering your adjusted gross income. Secondly, the distribution to your favorite charity still counts toward satisfying your required minimum distribution. This can be a smart way to give, but make sure you check with your advisor.

6. A Note for Very Generous Taxpayers. You can generally deduct up to half of your adjusted gross income in one tax year. The IRS allows those generous taxpayers to carryover deductions that exceed their charitable contribution amounts for up to 5 years. There are some categories of non-profits in which the IRS only allows up to 30%.

7. Your Gift Tax Exclusion. In the spirit of the holiday season, remember that you can give gifts of up to $14,000 to individuals before the end of the year. This can save gift and estate taxes by sheltering them with the annual gift tax exclusion. If you are married, you and your spouse can use your exemptions together to give up to $28,000 per beneficiary.


How's that for a holiday gift?

Accounting | Bookkeeping | Tax Services | QuickBooks Solutions | Small Business Advisory


Source: http://www.inc.com/
Image Credit: Getty Images

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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