Taxpayers Who Give Receive Generous Deductions
Generosity pays at tax time.
Even in normal times, Americans are a generous lot, giving $126 billion in 1999--the most recent year for which statistics are available--for an average of $3,100 for each taxpayer who itemized deductions.
The number may have climbed even higher last year. The Sept. 11 terrorist attacks prompted charitable giving by millions of Americans, who gave an estimated $1.5 billion for victim relief and related causes.
For taxpayers who itemize deductions, those charitable contributions can mean big savings--perhaps more than they realize. Many don’t always remember to claim all of the deductions they’re entitled to, or properly account for their value.
“There are a lot of charitable contributions, especially the noncash contributions, that people overlook,” said Tom Pudner, manager of personal financial planning at KPMG in McLean, Va. “They do a good job of accounting for the big checks, but they miss a lot of the non-cash contributions.”
Are you making the most of your charitable giving? It’s worth a review. Taking tax deductions for the value of your charitable gifts and mileage leaves you with more cash to give again.
Here’s a guide to what’s deductible and how to document your deductions.
* Cash: If you gave more than $250 to a charitable organization in 2001, you need to have written confirmation that you didn’t receive anything of value in return.
Confirmation is required only when you give a single gift worth more than $250. If you gave regular gifts to an organization that added up to more than $250 during the year--for instance, if you gave $25 each week to your church--each payment is considered a separate gift. But you should maintain the canceled checks--or some other evidence--to establish the value of the gifts.
Many churches provide envelopes to parishioners and will keep track of donations for those who use them. This--or writing checks rather than giving cash--is an advisable approach for those who give generously.
* Appreciated securities: If you donated securities--such as stocks or bonds--that were worth more than what you paid for them, you can deduct the full market value of the security on the date of the donation. But neither you nor the charity has to pay capital gains taxes on the profit.
The catch: You must have owned the investment for more than a year to deduct the appreciated value. If the investment was owned for less than a year, you can deduct the lesser of the original purchase price or the current market value.
* Depreciated property: Unwanted used stuff--clothing, furniture and appliances--is a potential gold mine of deductions. But make sure you can prove what you claim.
The IRS expects a record of the organization you gave to, the date and a description of the donated items. If the value of the donation is more than $250, the agency wants more records. And if the value is more than $500, you need to file a separate form--an 8283--that details the property donated, the value and how you determined that value--such as through appraisal, thrift shop value, catalogs etc.
Can’t figure out the value of your donated items? The Web site www.taxsave.com, run by Income Dynamics Inc. of Omaha, Neb., sells a computer program that provides market values of thousands of items by indexing and analyzing the sales of millions of household items each year.
The program costs $29.95, so it’s not worth purchasing it if you donated a handful of used T-shirts. But Gordon Whitten, president of Income Dynamics, said its average customer deducts about $1,500 in used goods. That’s a saving of $500 for someone in the 30% tax bracket.
* Donated cars: If you donated a car to charity last year, it’s up to you to determine the value of the donation. And there are tight restrictions on how you determine that value.
For instance, you can’t deduct the high-end Blue Book value for a car if it’s in need of major repairs. You must determine the real market value--what a willing buyer would pay. A mechanic or used car dealer can help. If the car is worth more than $5,000, you’ll need a certified appraisal.
Although some charities maintain they’ll value the car for you, the taxpayer is liable for whatever value is used to figure the tax deduction for the car.
* Giving time: You can’t deduct the value of the time you donate to charity, but you can deduct mileage and out-of-pocket expenses.
For instance, if you drove 40 miles a week to the local hospital to serve as a candy striper and you paid $50 for the uniform that all hospital volunteers wear, you can claim a charitable deduction for those costs. For car expenses, you can either deduct your actual costs--provided you maintain good written records--or you can deduct 14 cents a mile.
* Quid pro quo: If you got something of value in exchange for your donation, subtract that value from the amount of the deduction. For instance, if you paid $500 for tickets to a charity dinner and the meal was worth $50, your deduction is limited to $450.
* College donations: There’s a special rule for those who give to colleges and get the right to buy tickets to athletic events in exchange. Only 80% of the value of the donation is deductible. In other words, if you joined the college athletic booster club at an annual cost of $300, which gave you the right to buy season tickets to the college home games, you can deduct just $240--or 80%--of that cost.
