It’s tempting. You want to be a good person, and give when asked. But if you take a few moments to do a little homework before making a charitable donation, you can maximize your tax deduction as well as the benefits on the receiving end.
First, the basics – only donations to qualified organizations are tax deductible. These include educational, religious, charitable, scientific, or literary nonprofit groups, as well as those that work to prevent cruelty to animals or children. Donations to political groups are not tax deductible. If you are not sure, you can go to the IRS website’s tool Exempt Organizations Select Check to find out whether or not you are dealing with a qualified organization.
You may also want to shop around a bit to be sure that your gifted funds are used in a way that meets your expectations. Certainly, donations to your own church or religious affiliation will most likely align with your values, but it may also interest you to find out exactly how your donation is being spent. You can find current information, history, ratings, and financial and performance metrics on qualified organizations by going to www.charitynavigator.org.
If you are donating a car, you have even more homework to do. Your tax deduction depends in part on what the charity does with the car in addition to its fair market value. Your deduction is significantly different depending upon whether the organization turns around and sells the car, uses it for their own activities, gives it away or significantly improves it before selling it. In any case, if the car’s fair market value is over $250, you will need an acknowledgement statement from the organization with these details to support your donation.
For an added tax advantage, you may also consider donating appreciated securities instead of cash. As long as you’ve owned the securities for at least a year, you’ll get to deduct the full market value, but you won’t have to pay tax on their long-term capital gains.
As always, you can contact us for more details on any of the above. You can also check out our previous blog You and Your Charitable Contributions. Do You Have Proper Documentation?.