Follow the tax rules to guarantee gift deductibility

Good deeds can also mean good tax breaks
By Kay Bell

As the year winds down, thousands of folks are writing checks to or boxing up items for their favorite charitable causes.

One of the side benefits of all this goodwill is that Uncle Sam will reward you at tax-filing time -- if you follow donation tax rules.

First, you have to keep an eye on the calendar. Your charitable gifts must be made in the tax year for which your are filing the return. To be claimed on your 2004 return, due next April 15, your donation has to be in the charity's hands by Dec. 31. Anything you contribute after that will count toward your 2005 tax return. return. You do get a bit of leeway here if you write a check or make a contribution by credit card. The 2004 date on the check or charge counts, even if the statement doesn't arrive or check doesn't clear until next year.

And just how much of a tax break your donations will produce also depends on how you file your taxes. Charitable contributions only help you at tax-filing time if you itemize deductions. That means you keep track of what you give and file the long Form 1040 and Schedule A.
If you opt instead to take the standard deduction when you file your return, the choice made by most taxpayers, your donations will still help the organizations you give to, but they won't help cut your tax bill. You can't add your donation totals to your standard deduction to increase that amount.

So how do you know whether you should itemize or claim the standard deduction? Start by finding out which standard deduction amount applies to you. It depends on your filing status: $4,850 for single or married filing separately taxpayers; $7,150 for heads of households; and $9,700 for married couples who file joint returns. If you have enough deductions -- for example, your donations plus mortgage interest plus real estate taxes -- to exceed the standard amount, it generally makes good tax sense to itemize.

The rules regarding charity tax claims
OK, you've determined that itemizing is the way to go. Now it's time to tally your big-heartedness.

A nice thing about charitable contributions is that, unlike medical or miscellaneous deductions, there is no threshold amount to meet. You can give as little as $5 and still add it to the rest of your itemized deductions.

And you're not limited to monetary donations. You can give merchandise, appreciated assets, count the miles you drive for a worthy cause, even deduct part of the price of a ticket you purchased to attend a charity event.

But there still are a few Internal Revenue Service rules you must follow to make sure your contributions pay off at filing time.

To be deductible, contributions must be made to qualified organizations. Organizations can tell you if they are qualified and if donations to them are deductible. You also can read the charity's literature to ensure that it is fully recognized by the IRS. For complete peace of mind, check out the agency's online list (Publication 78) of exempt organizations or call the IRS at 1-800-829-1040 and ask about the group's tax status

If you get anything in return for your donation -- merchandise (including your old auto), goods, services, admission to a charity ball, banquet, theatrical performance or sporting event -- you can deduct only the amount that exceeds the fair market value of the charity's thank-you token or benefit. For example, if you give your local PBS station $100 and get a $25 videotape of a Masterpiece Theater performance in return, you can only deduct $75.

When you give goods instead of cash, it's up to you -- not the IRS, not the charity -- to assign a value to your donation. Of course, the IRS has rules on how you decide what a donated item is worth: Claim its fair-market value, or what a willing buyer would pay for that item in its current shape, not what it was worth when it was new. Click here for some Bankrate.com worksheets to help you complete this task.

Even though you generally don't have to include substantiation of your gift-giving with your return, it's a good idea to keep a record of your donated goods as well as cash gifts. So when Goodwill asks, "Do you want a receipt?" say "Yes." If they don't offer, ask for one.

Extravagant giving
Acknowledgment of your largesse is necessary when your gifts are large. For a contribution of $250 or more, you must get a written receipt of your donation from the qualified organization before you can claim the deduction.

When you donate more than $500 worth of goods to charity, you must include with your tax return Form 8283, Noncash Charitable Contributions, detailing your generosity. Take this deduction amount and forget the form, and the IRS could disallow your claim.

In an even bigger giving mood? If you claim a deduction of more than $5,000 for an item, the IRS wants more than just your word. You must have a qualified appraiser provide the value and then attach an appraisal summary (Section B of Form 8283) to your tax return.


And while Uncle Sam basically views charitable gifts as a good thing, he has his limits.

In some cases, the IRS won't let you claim all your contributions in one tax year. Generally, your donations cannot be more than 50 percent of your adjusted gross income, although in some instances the limit is 20 percent or 30 percent depending on the type of property you donate and the type of organization to which you give it.

You can carry over your excess contributions for up to five more tax years, but your carryover amounts will still be subject to the original adjusted gross income limitation rules. For most donors, these limits don't pose a problem. However, the total of all your Schedule A itemized deductions could be reduced if you make a lot of money ($139,500 for 2003 returns).

More details on charitable contribution tax deductions and possible limitations are found in IRS Publication 526, Charitable Contributions, and Publication 561, Determining the Value of Donated Property.

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