According to a recent Forbes article, Americans donated more than $316 billion to charity last year—and most of that came from individuals. Holidays are a traditional time of giving, and not just because we like to get in those year-end tax deductions!
Forbes provides 10 tips for getting the most out of your charitable giving this year:
1. Itemize. The IRS requires that you itemize your charitable deductions each year on your 1040 so be sure to keep careful records.
2. Get a receipt. If you are giving property as a gift, be sure you get a written receipt from the organization that lists the items you have donated. If you are giving cash you need a receipt as well, either from the charity directly or in the form of a cancelled check or credit card receipt that includes the name of the charity.
3. Choose wisely. Not every charity is worthy of your money. Be diligent about looking into the organization’s success with its mission and alignment with your values. Just because a charity may be recognized by the IRS as an exempt organization doesn’t ensure it is a charity you prefer to give to. Just as you’re diligent about your investments and the company you keep, do the same with charities you choose to give to.
4. Remember payroll deductions. If you give via a payroll deduction, your employer should furnish you with a record of your annual deduction.
5. Deduct value of incentives. If you receive something in exchange for your donation—even a coffee mug or a t-shirt—you are required to deduct the value of that item from the value of your donation. For example, if you paid $200 for a seat at a charity dinner event and the value of the dinner is $50, your charitable donation (and attributable deduction) is the difference of $150.
6. Consider giving appreciated assets. You can receive a double benefit if you donate an appreciated asset like stock or real estate. If you have owned the asset for at least a year, you can deduct the fair market value and avoid paying any capital gains tax.
7. Understand what you can deduct. If you provide services to a charitable organization, you can deduct things like mileage or supplies, although you cannot deduct your time.
8. Document the gift value. Non-cash items need to be documented in terms of the item’s condition in order to assess a fair market value. If your donation is worth more than $500, the IRS requires a written appraisal for fair market value.
9. Be aware of limits. Many people are not aware that there are limits on charitable contributions, which are tied to your adjusted gross income (AGI). If you give more than 20 percent of your AGI, then you may run up against these limits, which vary according to the gift (cash, non-cash items, appreciated assets).
10. Give by year-end. You will only receive deductions for those items or cash you give during the calendar year, so be sure you make your donation by December 31. If you gift via check or credit card, you will receive the deduction as long as they are recorded by December 31 – even if you don’t pay the credit card or the check isn’t cashed until 2014.
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Note from the author: Charitable giving can be the cornerstone of any estate plan. If you are the giving type and want to provide for your favorite charity or church during life or after, check out your options with an estate planning attorney. For the first two people who read and mention this article, we've reserved space on our calendars this month for a complimentary Family Wealth Planning Session (a $750 value) to spend up to two full hours gaining an understanding of the estate planning process. Call 720-266-8190 today and mention this article.