Deductions for Year-end Charitable Giving

We make a living by what we get, but we make a life by what we give. — Winston Churchill

Don’t miss out on making charitable gifts before year-end to get the federal tax rewards that are available.

While we still face uncertainty about the income tax rates in 2010 and while I want to make sure I hedge this bet every which way I can, it “looks like maybe” the 2010 rates will be extended into 2011. If rates go up, deductions may be worth more in 2011 because as with all deductions, the higher your tax rate, the more tax savings your charitable deduction produces.

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. For 2010, the standard deduction is $5,700 for single individuals, $11,400 for married persons filing jointly, and $8,400 for heads of households.

If you don’t have enough deductions to itemize, consider making your 2010 contributions and contributions you plan for 2011 all in December 2010. This may give you the benefit of the deduction by doubling up on your contributions in one tax year. Then you will not make another round of charitable gifts in 2011 when you do not itemize.

Qualifying Charities

Only contributions to qualifying charities are deductible. The IRS website ( list most qualifying organizations in Publication 78, but many religious and government organizations that are qualified do not appear on the list. If you have any doubt, check with the charity prior to making a donation.

Percentage Limitations

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.
When is the Gift Complete

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 charged to a credit card are deductible when charged, even though you may not pay the bill 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.

Record-Keeping Requirements

For contributions of cash, checks, or other monetary gifts (regardless of the amount), you must maintain a record of the contribution either by (1) a bank record, or (2) a receipt from the charity showing the date, the charity name and the amount of the donation. You must have the record or receipt in hand before filing your return.

For contributions of property other than money, you must have a receipt from the charity. Value need not be stated on the receipt.

Substantiation Requirements

Any contribution of $250 or more is subject to both the substantiation rules and the record-keeping requirements. For cash contributions, both requirements may be met by a single document which is both a receipt and a contemporaneous written acknowledgment from the donee organization with required information provided. Any contribution of $250 or more must have a contemporaneous written acknowledgment from 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 substantiation. 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.

Volunteer Expenses

In addition to actual contributions of cash or property, charitable deductions are available for expenses incurred while volunteering for a 501(c)(3) charity. You can deduct long distance telephone calls, automobile expenses (still only 14 cents per mile plus parking and tolls), and costs of required uniforms and other items you buy in the course of your work for charity. You can’t deduct the value of your time, your professional services, your child care expenses or meals.