Greg Ward for financialfinesse.com writes: ‘Tis the season to be jolly, and what better way to express your jolliness than to share it with others. Friends and family may be the first on your list, but don’t forget the less fortunate. My friend and colleague, Diane, and her daughter are starting a new tradition this year: They have adopted a family for the holidays so Diane and her daughter have chosen to sacrifice part of their Christmas so that others can enjoy theirs.
Not only is this good for the heart and soul, but there may be a financial benefit as well. The IRS allows taxpayers to deduct charitable contributions as an itemized deduction on their tax return. While this should not necessarily be the sole reason for making charitable donations, it should not be overlooked either. Here are some important facts to remember when making a charitable contribution:
#1) In order for donations to be deductible, they must be made to a qualified organization, not an individual.
Diane and her daughter may know a family that is in need through their church or community, and it would be okay to buy gifts or to share meals with that family directly, but doing so may not qualify for a tax deduction. Instead, the gifts or meals would have to go through a recognized charity. You can buy gifts for children through programs like Angel Tree and Toys for Tots. If you are interested in providing meals, contact The Salvation Army or visit Charity Navigator for help finding a local charity that offers food for those in need.
#2) Non-cash donations are okay, but you may need to keep good records.
There are many ways Diane and her daughter can help their adopted family. Cash is the most common form of donation, but they could donate non-cash items such as clothing, furniture, and appliances or assets such as vehicles, stock certificates, or real estate. Any donation of $250 or more should include a receipt or similar type of verification. An additional tax form is required for non-cash donations in excess of $500, and appraisals are required for non-cash donations in excess of $5,000. Volunteers may claim certain expenses related to the use of a vehicle for charitable purposes, but their time, while valuable, is not a deductible expense.
#3) Donations must be made by December 31st.
Whatever Diane and her daughter decide to do, they will want to make sure they do it before watching the ball drop in Times Square. The When to Deduct section of IRS Publication 526 contains important information on the timing of gifts. For example, gifts made by check are deductible in the year the check is mailed. If you want to text a donation for Typhoon Haiyan relief during halftime of the football game, the donation is considered made at the time the text is sent if the contribution is charged to your account. Contributions made with a credit card are deductible in the year the charge is made. As long as the contribution is made by December 31st, you can claim it on that year’s tax return.
When the holiday season rolls around it’s easy to get distracted by all the holiday parties and gift exchanges. But before you go back for another round of eggnog, don’t overlook those that may have to do without this year. (For more information on charitable deductions, see IRS Tax Topic 506.)
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