Taxpayers can stretch their charitable donations farther by using tax-deductible strategies before the end of the year. But the process requires some planning and research, as well as some pitfalls to avoid. A big one?
“Make
sure it’s a qualified charity,” said Thomas Aromando, a certified
public accountant with Fitzpatrick, Bongiovanni and Kelly, which has
locations in the Marmora section of Upper Township and in Linwood.
On its website IRS.gov,
the IRS has a searchable online database, “Exempt Organization Select
Check” that lists most eligible organizations. Also, churches,
synagogues, temples, mosques and government agencies are eligible to
receive deductible donations even if not listed in the database, the IRS
says.
Donations can come in
different forms — from cash, check and credit card to gifts of clothing,
furniture and vehicles. For individuals, only taxpayers with itemized
deductions on Form 1040 Schedule A can claim them for charitable
contributions, the IRS says.
“Always have a receipt if you’re giving a check or cash,” Bongiovanni said.For
clothing donations, one of the ways to assess value is “thrift shop
value,” what similar items would sell for at a thrift shop, he said.
Meanwhile,
a special provision of the tax code is set to expire at the end of the
year. This offers the ability of those at least 70½ years old to make
charitable contributions directly from IRAs, up to $100,000.
“That’s
been big. It helps the charities, and lots of times people may not need
the money, but they’re required to take it because of the required
minimum distribution rules,” Aromando said.In
the U.S., charitable tax deductions trace back to the War Revenue Act
of 1917 and were tied to federal income tax rate increases to fund the
World War I effort, the U.S. Joint Committee on Taxation said in a
February 2013 report. Fearing higher taxes would draw money from
charities and increase need for public support, the charitable
deductions were a compromise, the report said.
In
2011, charitable giving by individuals reached about $218 billion,
according to estimates cited by the U.S. Joint Committee on Taxation,
although not all donations were tax deductible. Including corporations,
estates and foundations, that overall figure was about $299 billion.A
tax deduction for charitable contributions encourages contributions by
reducing a taxpayer’s after-tax cost of the contribution.
Consider a $1,000 donation made in 2013.
To
a single taxpayer with $28,500 of taxable income who itemizes
deductions and is in a 15 percent tax bracket, this $1,000 contribution
winds up costing the taxpayer just $850, the report says.
For higher tax brackets, the difference can be more significant.That
same $1,000 donation by a single taxpayer who has $479,150 of taxable
income and is in the 39.6 percent tax bracket can reduce tax liability
by $396, making the after-tax cost of the contribution $604, the report
says.
This time of year is an important one for area charities. Donations often surge around the holidays.
“Around
the holidays between Thanksgiving and Christmas, they’re in that mode.
And a lot of them do make gifts in someone’s honor or memory this time
of year,” said Margie Barham, the executive director of the Community
FoodBank of New Jersey's Southern Branch in Egg Harbor Township.
Barham said the need is great in the region, as the slumped economy in recent years has affected charitable giving.
“The
need’s still there, it’s still growing, but contributions are going
down,” she said. “We’re even seeing with our food drives, a decrease in
what they’re bringing in.”
Barham
said charitable financial gifts are down about 18 percent from July to
present compared to a similar period last year. Comparing November 2013
to the previous November reveals a 41 percent decline, some of which,
Barham said, represents a burst of giving last year following Hurricane
Sandy.
“Times are tough for
everyone so when someone does make a charitable gift they are
sacrificing a little,” she said. “We very much appreciate people
donating and thinking of others because we know that comes as a
sacrifice as well for them.”
Barham suggested potential donors research charities using a website such as CharityNavigator.org to gauge where money is being spent.
Federal
tax policies have a significant role in charitable giving, and “tax
incentives significantly affect how much people give, as well as the
timing of their donations and to what causes they give,” Eugene Tempel,
cqfounding dean of Indiana University School of Philanthropy, testified
before the House Committee on Ways and Means in February.The IRS offers some additional tips on year-end giving.
n
To be tax deductible, donated clothing and items such as furniture and
appliances must generally be in good condition. Donors must get written
acknowledgement from the charity for all gifts worth $250 or more, the
IRS says.
n For monetary
donations, taxpayers need a bank record or written communication from
the charity that reveals the charity’s name, date and amount, the IRS
says. Bank records can include canceled checks, bank statements and
credit card statements.
n
Contributions are deductible in the year they are made; a donation
charged to a credit card in 2013 counts for that year, even if the bill
is not paid until 2014, the IRS says.
n
For individuals, only taxpayers who itemize deductions on Form 1040
Schedule A can claim deductions for charitable contributions, the IRS
says.
Sunday, December 22, 2013
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