Strategic charitable giving can help investors reduce their tax bill and feel good at the same time. Learn more.
U.S. households are noted for their charitable giving, but tax benefits appear to motivate much of this philanthropy, according to experts who urge donors to make sure they maximize the tax advantages of their contributions.
“When it comes to philanthropy, Americans are remarkably generous. Nearly 85 percent of U.S. households give to charitable and religious organizations annually, by far the highest percentage in the world,” consultant Charles F. Bryan Jr. wrote in a recent article in the Richmond Times-Dispatch. “No doubt, the ability to receive a tax deduction contributes to that generosity, a privilege that citizens in most other countries do not have.”
Ten percent of annual giving takes place in the last few days of the year, according to the website Charity Navigator, which tracks trends in charitable giving. “We shouldn’t take issue with donors who are motivated by the tax benefits of giving,” states the website. “In fact, many worthy charities are funded by donors who are able to make larger gifts as a result of the tax deductions they later claim.”
To help get the most tax benefit from charitable giving, Charity Navigator offers the following five tips:
1. Document All-Cash Gifts: To substantiate a monetary gift, the IRS requires a cancelled check, credit card statement, bank statement or an official written documentation from the charity.
2. Monetary Gifts Over $250: The IRS requires additional documentation for gifts exceeding $250, including a receipt from the charity stating the organization’s name, the value of the gift, the date of the donation and a statement verifying that the donor did not receive any goods or services in return for the gift.
3. Valuing a Donated Vehicle: The IRS allows donors to deduct only the amount a charity receives from the sale of the car, and will accept the receipt from the charity as proof. Fair market value can only be deducted under special circumstances, including instances when the charity sells the car at a discounted price to a low-income individual or the charity keeps and uses the vehicle instead of selling it.
4. Donate to a Qualified Organization: Charitable giving may not be fully tax deductible unless the gift is made to an organization deemed qualified under IRS code 501(c)(3).
Itemize: Taxpayers must itemize a gift in order to take a charitable donation, and should make sure that total deductions exceed the standard deduction. Online donations made through December 31 qualify for the current tax year, as do checks mailed by December 31.