‘Tis the season for giving. So, will it be cash, charge or pledge? An hour of your time or the clothes off your back? What about that older car or those appreciated stocks? Are you interested in helping an international charity or a domestic one? And would you like a tax deduction?
Just like when you shop for gifts for family members, you’re presented with plenty of choices—and decisions—when making charitable donations.
If you itemize, how you donate can make a difference. For example, cash or pledged donations are generally deductible in the year you actually pay them. Donations charged to your credit card are usually deductible when you make the contribution, even if you haven’t paid them by year end.
Your time is not deductible, though you can claim a charitable deduction for using your vehicle. Your choices: actual expenses or the standard mileage rate, which is 14 cents for 2003 and 2004 tax returns.
The deduction for tangible stuff like the shirt off your back and household goods is the fair market value. That can be determined by finding out the sales prices of similar items in thrift stores or consignment shops. In some cases however, depending on the quality and the value of your donation, you may need a written appraisal.
Cars are also valued at market price, though the actual process can be tricky. That’s because—despite what some organizations would have you believe—a used car guide is only a starting point for calculating the deduction. Vehicle condition, mileage and your local market conditions also affect value.
For stocks traded on an exchange, the average of the high and low selling prices on the day of the donation can be used as the amount of your deduction.
TIP: donating appreciated stocks can provide a double benefit: you get to deduct the value on the date of the gift while saving capital gains tax.
What about the choice between international or domestic donations? You might want to choose a domestic organization that also provides support internationally. Your donation is likely to be deductible as long as the charity meets US tax law requirements. How to find out? The Internal Revenue Service (http://www.irs.gov/) maintains a list of qualified charities.
Whether you’re able to take a tax deduction or not, asking questions can reassure you that your donation will be put to good use. One thing to ask about: the amount of contributions actually going to help the needy. Some charities spend more for fundraising and administrative expenses than they do for programs. You can search The National Database of Nonprofit Organizations (http://www.guidestar.org/index.jsp) for more information on specific nonprofits.
Another caution: the Federal Trade Commission (http://www.ftc.gov/) advises that you be careful about those pleading phone calls—the ones that are still allowed despite the “do not call” registry—from organizations you’re not familiar with. They may come from scam artists.
When you’re not sure of a charity’s legitimacy, the Better Business Bureau Wise Giving Alliance web site (http://www.give.org/) can provide information. You can also check to see if a charity is licensed in your state at the National Association of State Charity Officials web site (http://www.nasconet.org/).
Whatever your plans for gifting during the holidays, care and diligence can help you focus on how best to share your generosity.