Smart Giving: How to Make the Most of Your Charitable Donation
June 3, 2022
If a cause or charity is inspiring you to give, know how to make the most of your generosity first. The federal government rewards those who make charitable contributions with significant tax breaks, as long as a few rules are met.
To be sure you are donating to a worthy and above-board organization, request a copy of its financial report. It summarizes the organization’s tax status, programs, and how the funds are used. With the exception of places of worship, all charities must file such a report with the IRS. You may also contact your state's attorney general's office or the Better Business Bureau for further investigation.
Sadly, whenever money is involved, fraud is also prevalent. Be particularly cautious when solicited by a charity. Warning signs of scams include:
- High-pressure sales pitches
- Requiring you to make an immediate donation
- Only being able to offer a “tax ID number,” which is no more than an employer identification number and does not guarantee non-profit status
A wonderful aspect of giving is the ability to deduct at least some of your donation from your income taxes. In order for the contribution to be tax deductible, it must be made to a qualified organization that meets IRS guidelines. To know if it does, you may ask the organization. But to be sure, check the IRS’s “Publication 78” online at www.irs.gov for the most up-to-date list of qualified charities, or call the IRS at 800-829-1040.
How to Donate Money
When donating money, for tax purposes and safety reasons, never pay with cash. Either write a check, made payable to the organization (never the individual collecting the donation), or use a credit or debit card. Avoid giving your account information over the telephone.
Another way to give money while minimizing your tax liability even further is to donate appreciated assets. By giving stock that you’ve held for more than a year directly to a qualified charity, you can claim a deduction for the full price of the asset – thus escaping a potentially hefty capital gains bill.
How to Donate Property
If you are considering donating such property as a vehicle or boat to a charity, be aware that the tax deduction rules have changed in response to past abuse of the system. Now, if you donate real property with a claimed value of over $500, your deduction depends on what the charity does with it.
If the organization uses your property (or makes a significant improvement to it), you may deduct its full fair market value from your income taxes. If, however, they simply sell the property, your deduction will be the gross price the charity receives from the sale.
How to Donate Goods
Yet another way of giving to a cause is to donate goods – including clothes, computers, and other personal and household items – to a charity.
Before boxing them up and delivering them to your local shelter, first determine their fair market value so you can receive the appropriate tax deduction. Fair market value is considered the price at which property would change hands between a willing buyer and a willing seller.
Also for tax purposes, be sure to keep a detailed record of your donations. You should have evidence of the condition and number of items you donated, the date you purchased the items and what their original price was, and signed and dated receipts from the organization that received them.
How to Donate Time
Have more time than money and possessions, or want to share your particular strength with those in need? Volunteer. Tax breaks are available to those who give in this special way. While there is no deduction for the value of services you provide, you may deduct a number of out-of-pocket costs associated with volunteerism, including:
- Reasonable and substantiated travel expenses
- Gas and oil expenses of 14¢ per charitable-use mile
- The cost of entertaining others on behalf of a charity (but not your own entertainment costs)
- Purchased equipment for volunteer duties (as long as you don’t maintain ownership)
- The cost of maintaining your own equipment used for volunteer duties
- Uniforms required for the volunteer service you perform
Never before has giving—whether it’s money, property, or time—been more necessary and valued. And by doing it right, your generosity can go a very long way.
BALANCE, Revised January 2016.