Uncommon charitable donations that can cut your tax bill

Atypical charitable donations that can cut your tax bill
By Kay Bell

If you think your tax deduction for charitable contributions ends when you drop that box of clothing off at the Salvation Army, think again. You may be cheating yourself.
The Internal Revenue Service allows several different ways to take tax advantage of your goodwill.

Driving home deductions

Volunteer work itself does not produce a tax deduction. However, your travel expenses getting to and from the volunteer location are deductible. If you use your car to help out once you get there (for example, delivering food to the needy for your church), that counts, too.

You can take a standard deduction of 14 cents per mile on your tax return. Or, if it's more advantageous and you kept track, you can deduct the actual cost of your gas for your philanthropic driving. With either choice, you also can include any parking fees or tolls paid.

Out-of-pocket expenses

Similarly, if you pay for some of a qualified organization's expenses and aren't reimbursed, these costs can count as charitable deductions. This might be buying stamps for a group's mailings or purchasing office supplies for the organization's administrative operations.

And if your volunteer work requires you wear a uniform -- say, as a Red Cross hospital aide -- the cost of the clothing and of keeping it clean are deductible.

Student lodging can mean a tax break

Did a student live with you last year? You may be able to deduct some expenses associated with that boarder, either a foreign or American student, if he or she:

1. Is not your dependent or relative,
2. Is a full-time student in the 12th or lower grade at a U.S. school, and
3. Lives in your home under a formal agreement with a qualified organization to provide educational opportunities for the student.
   

You can deduct up to $50 a month for each full calendar month the student lives with you. The IRS even eases the definition of a month in these cases. When a student meets the three conditions above for 15 or more days, that counts as a full month.

Gifts of appreciated property

You also can give appreciated assets, enabling you to avoid paying capital gains taxes while simultaneously getting a tax deduction. This tax move is most beneficial if you donate stock you've owned for more than a year and its value has increased substantially.
If you sell the appreciated stock, you'll have to pay taxes at the 15-percent long-term capital gains rate on your profit. Even if you give the cash you make from the sale to a charity, you'll still have to pay the taxes. But if you give the stock directly to the qualified organization, you can claim a deduction for the full asset price at the time you donated it and escape the capital gains bill.

For example, if you bought a 100 shares of stock several years ago for $5 a share and it was selling for $10 a share when you donated it to a charity, you can claim the full appreciated value of $1,000 as a charitable deduction. Remember, this valuation applies to long-term holdings. If you had owned the stock for a year or less, you could only deduct what you originally paid for the asset, $500 in this case.

A growing number of charitable groups have established programs to accept gifts of appreciated property. Check with your favorite charity to see if it can help you through this donation process.

Easing your tax bill and helping your country

And if you're feeling particularly patriotic, you can help keep reduce the country's public debt along with your tax bill.

The Treasury regularly borrows money by selling Treasury securities such as T-bills, notes, bonds and savings bonds to the public. This public debt helps raise cash to keep the U.S. government operating. Any contribution you make to reduce the national debt burden is deductible as a charitable contribution on your tax return for the year in which you make it.

You should make the payment as a separate check payable to Bureau of the Public Debt and send it to: Bureau of the Public Debt, Department G, P.O. Box 2188, Parkersburg, WV 26106-2188. Of, if you prefer, you can save a stamp and stick the check in your tax return envelope.

Same donation rules apply

Although some of these charitable donations are not commonly taken, the usual tax rules still apply.

To be deductible, contributions must be made to qualified organizations. Ask the group if it meets IRS guidelines. Most will be able to tell you. Or you can check IRS Publication 78 online for the latest list. You also can call the IRS at 1-800-829-1040, TTY/TDD connection at 1-800-829-4059, to find out if an organization meets IRS charitable standards.
And if your gift is worth $250 or more, you've got to get a receipt from the organization before you can claim the deduction.

Don't get greedy

While Uncle Sam is pretty flexible about letting you write off your good works, don't go overboard. There are some things the IRS says it won't allow, including:

• Contributions to a specific individual, regardless of the person's neediness,
  
• Contributions to a group created to lobby for law changes,
  
• The value of your time or services, such as the income you forfeited to work as an unpaid volunteer,
  
• Your personal expenses, for example, the cost of meals while you're volunteering,
  Appraisal fees to determine the value of donated property, or
  
• Contributions to homeowner associations, social or sport clubs, civic leagues or chambers of commerce.
  

And be sure to meet the most important guideline, or at least the most timely one right now: Make your uncommon contributions by Dec. 31. If you miss that deadline and make the donation in the new year, you can't claim your largesse until you file your 2005 return.
More details about tax deductions for charitable contributions are found in IRS Publication 526, Charitable Contributions, and Publication 561, Determining the Value of Donated Property.


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