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Last week, I discussed about deductible auto expenses. Charitable contributions is another favorite topic that has come to the forefront during my tax planning strategy meetings.
You can give away up to 20 percent of your adjusted gross income without worrying about any limitations. In most cases, you can give away up to 50 percent of your income, depending on the type of organization you give to and whether your contributions are cash or noncash.
You can take a full deduction for contributions to most charitable organizations, such as churches, schools, and hospitals. You can only deduct gifts of up to 30 percent of your adjusted gross income to other organizations, such as veterans’ organizations. And deductions for gifts of appreciated assets such as stocks or property are limited to 30 percent or 20 percent of your income, depending on the receiving organization. Your deduction is also limited if you only donate the use of property.
If you cannot take a full deduction for your charitable contribution, you can carry forward the excess to up to five succeeding years.
Documentation
As of January 1, 2007, you MUST have a receipt or documentation from the charity to take a deduction. You can no longer deduct even loose change that you put into the offering plate.
If you want to give cash, put it in an envelope with your name so the organization can send you a receipt. In an apparent about-face, however, the IRS now allows cancelled checks to be used as documentation of charitable donations.
Don’t forget to deduct volunteer expenses. For example, you can deduct your transportation costs for going to a downtown mission to help out. The rate for 2008 and 2009 for charity-related mileage is 14 cents per mile.
You can deduct the fair market value of clothing, appliances, furniture or other items you give to charity. Write up an itemized list and have someone from the charity sign it to protect yourself if the IRS questions your deduction. The charity won’t tell you how much the item is worth, but the charity will vouch for having received it from you.
You might want to make charitable donations toward the end of the year, after you’ve had a chance to estimate the amount of your tax bill. If you think you might wind up owing a lot of taxes for the year, you can increase your year-end charitable donations and reduce your tax liability. But if it looks like you might benefit more from the deduction in the following year, wait until January 1.
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