Sunday, December 22, 2013

Stretch charitable donations by using tax-deductible strategies

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, 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 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.


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