Charitable Giving Guidelines

Tip of the Month

January, 2011

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Charitable Giving Guidelines

Even though it’s now 2011, completing and filing taxes for 2010 is just beginning. While we all know that charitable donations are an ideal way to reduce your tax liability, it’s a good idea to review some of the finer points of the IRS rules. While it’s a good feeling to give back to others, the act is more rewarding when we also receive a bottom-line credit.

Charitable Donations
Generally, donations to the following charities and organizations are 100 percent deductible: religious organizations (churches, synagogues); the United Way, hospitals, research facilities, educational organizations, some membership organizations, units of government and some private foundations.

Subtract Cost of Goods and Services
You cannot deduct 100 percent of your donation if you received any goods and/or services in exchange. For example, if you paid a $35 registration fee to participate in a benefit race and received a T-shirt, the value of that shirt must be subtracted from the total donation. Estimate the value as best as you can – you’re on an honor system.

Not Everything is Deductible
Let’s say you volunteer your time at the same benefit race. The time you spent volunteering is not deductible. However, any out-of-pocket expense associated with the run may be, including mileage, lodging and meals.

Prove Your Donation
If you are giving cash, be sure to get a receipt that includes any pertinent information or details. If you paid by check, keep the cancelled check or rely on your bank’s electronic check register. Credit card payments can be justified through a receipt or your credit card statement.

Fair Market Value of Goods
Most everyone at some point donates clothes, furniture, electronics, books and other items to various kinds of charities. Get and keep an itemized list of all items donated. However, remember that if a new iPod cost you $200 and you donate the iPod after two years, you cannot claim $200 on your tax return.

The IRS bases the amount on fair market value, so in most cases you must estimate the value. Think of this in terms of when you trade in a car; the $30,000 car after five years may only be worth $10,000 as a trade-in. When figuring the fair market value of a donation, make sure you don't overestimate the value of the gift. A good rule of thumb is to calculate what your item would sell for at a thrift store or in a garage sale. If you donated an item with a value more than $500, you must have the item appraised by a third-party for verification. This usually involves cars, artwork or estate jewelry.

Qualifying Year
A gift is deductible only in the year it was paid. If you give a client or customer a gift, despite the fact that the gift will be used in the following year, you can only deduct the cost of that gift in the year you originally gave it.

Donating Stock
You can also donate stock to charity. If the stock has appreciated in value, you get to donate without having to pay taxes on the capital gains and you can deduct the entire current value of the stock.

Itemizing is Important
You will only get IRS credit for charitable donations if you itemize your deductions on your return. There is no provision to add these gifts to the standard deduction.

Giving is good for the soul – and also good for us in other ways. As always, it’s important to consult your accountant or CPA for an educated opinion on what’s deductible, the rules and restrictions associated with charitable giving, and advice on how to lower your tax liability in other ways.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.