With
the end of 2013 approaching, many of our clients are thinking about what
charitable gifts they want to make. Here are a few tips on giving effectively
and maximizing the tax deductibility of your gifts.
Keep the Calendar in Mind
For
tax purposes, donations made by check can usually be deducted if they
are postmarked by December 31; however, if you are making a large donation,
check with a tax advisor since industry practices often dictate that checks
must be received by the charity and cashed before the end of the year. The IRS
requires donations in excess of $250 to be documented more extensively, and you
must provide the name of the organization, donation amount, and whether you
received any goods or services from the charity in exchange for the donation.[1]
Online donations are processed instantly, and you may want to consider making
last-minute donations by credit card instead of by check if you are concerned
about this issue.
Avoid Giving Cash
In
order to deduct charitable gifts on your taxes, all donations must be
substantiated by a receipt, cancelled check, or written acknowledgement by the
charity.[2]
If you frequently give cash to organizations that solicit in front of
supermarkets, malls, or local stores, you may be losing out on a major
deduction. Consider supporting these organizations by writing a single check or
asking for a receipt for each cash donation.
Consider Alternative Sources
of Gifts
Not
all donations need to come from your checking account. If you are subject to
Required Minimum Distributions from your IRA, you can still make qualified
charitable donations (QCD), which will count towards your annual RMD amount and
will also be excluded from your 2013 taxable income. IRA owners can distribute
and exclude from their income up to $100,000 in direct donations to qualified
charities - typically, those that meet IRS 501(c)(3) regulations. The QCD
provision will expire at the end of 2013 unless Congress takes action to extend
it.[3]
Another option for taxpayers is to give appreciated securities, which will
qualify for tax deductions at their full fair market value.
Give Locally
One
of the best ways that you can make an impact in your community is to donate to
local organizations or community foundations. Community foundations focus on
local needs and can help you identify areas of need and show you how to make
the greatest impact with your gift. Even small contributions can make a big
difference to charities like food banks, homeless shelters, and animal welfare
groups. In addition, many community foundations now have donor-advised funds
that can help simplify the donation process.
Research Charities Carefully
New
charitable organizations open their doors every day, and it’s
wise to scrutinize potential gift recipients carefully before making a
donation. Online tools like CharityNavigator.org or GuideStar.com are a great
way to check out the legitimacy of organizations and ensure that your donations
will be used as promised. It’s usually
wise to avoid donating to organizations that rely on paid fundraisers since those
(for-profit) fundraising firms often receive a significant percentage of the
funds donated. Here are a few best practices for charitable giving:
Clarify your beliefs and
donation objectives
Research organizations
carefully to ensure legitimacy and tax status
Make sure their mission
aligns with your values
Give proactively (not
necessarily in response to appeals)
Avoid the middleman and
make donations directly to the organization or foundation of your choice
Trust your instincts
Don’t give cash and always document your donations
Consider developing a
long-term relationship with charities that are a good fit for your values
If
you have any questions about the information we’ve
presented or would like more information about charitable giving, please give
us a call, we’d be
delighted to lend a hand.
