It's Not Too Late - Get Your Deductions for Charitable Giving
I resolved to stop accumulating and begin the infinitely more serious and difficult task of wise distribution.
- Andrew Carnegie
At the end of the calendar year, many people think about making charitable gifts in order to obtain charitable deductions on their 2012 income tax return.
In order to receive a tax deduction for your contributions to charity, you need to have deductible expenses on your 1040 Schedule A that exceed the standard deduction. In addition to charitable deductions, there are deductions for medical expenses, state and local taxes, mortgage interest and many other items. You can itemize deductions if the total of deductions exceeds the standard deduction. For 2013, the standard deduction is $6,100 for single individuals, $12,200 for married persons filing jointly, and $8,950 for heads of households.
Only contributions to qualifying charities are deductible. If you have any doubt, ask the charity to show you their exemption letter, or check out the charity or look it up in IRS Publication 78. In general, contributions to churches, synagogues and mosques are deductible even if the organization is not listed on the IRS exempt list.
The timing of the gift is important to make sure it is made by the last day of the year to qualify for the tax deduction. Hand delivery occurs on the day the property changes hands. Mailed gifts are considered made on the date of the postmark. Donations via credit card are deductible when made, even though the charge might not be paid until the next year. Gifts of assets transferred electronically occur when the assets leave the donor's account. Pledges are deductible as the payments are made, not the date of the pledge. Donations made by check count for 2012 as long as they are mailed in 2012.
Be mindful to properly document any deductions claimed on your income tax return. For cash contributions of less than $250, no receipt is required. For donations of more than $250, you must have a receipt from the charity before you file your income tax return. The receipt must show the date, the charity name and the amount of the donation and be signed by a representative of the charity.
If you make non-cash donations, such as a work of art, there are varying degrees of proof of value required. For gifts under $250, you do not need a receipt. For gifts between $250 and $500, a contemporaneous detailed description of the gift by the charity is required. For gifts between $500 and $5,000, you must also file form 8283 with your 1040. For contributions of $5,000 to $500,000, you must obtain a qualified appraisal for the gift (unless the gift is of securities in a publicly traded company). For gifts over $500,000, you must file the appraisal with your 1040
Until the end of the year, December 31, 2013, (unless Congress extends it) an IRA owner who has reached the age of 70½ or older can make a direct transfer of up to $100,000 per year to an eligible charity, tax free. This means that amounts directly transferred to the charity from an IRA are counted in determining whether the owner has met the IRA's required minimum distribution (RMD) but will not be considered a taxable withdrawal.
Consider giving appreciated securities to a qualifying charity. When you make a donation of appreciated securities, you may take a full tax deduction for the market value of the investment and avoid paying taxes on the capital gain.
For example, if you paid $300 several years ago for stock that's now worth $1,000 and you're in the 35% tax bracket, your direct tax savings would be $350 ($1,000 × 35%). You'd also avoid the capital gains tax that you'd otherwise have paid on the investment, for an additional savings of $105 (15% capital gains tax rate × the $700 gain).
There are two limitations on the amount of charitable deductions you can take. The first limit is based upon the type of charity receiving the contribution. If the recipients are "50% organizations," which are churches, schools, public charities, and the like; then the deduction limit is 50% of adjusted gross income. If the gift is to a "30% organization" such as a private foundation, then the deduction limit is 30% of adjusted gross income.
The second limitation is based upon the type of property being donated. If appreciated capital gain property is donated, then the deduction limit is 30% of adjusted gross income. This 30% limit applies even if the appreciated stock goes to a "50% organization." When appreciated capital gain property is donated to a 30% charity, the deduction is limited to 20% of adjusted gross income. You can carry any excess deduction forward for the next five years.