Know the Rules for Charitable Giving
By Ric Edelman
Do well for yourself while doing good for others
The Internal Revenue Code offers a tax deduction when you give money and assets to charitable organizations. Follow the rules when making donations to make sure you are entitled to take the deduction.
Get a receipt. No matter what you donate, you cannot take a deduction unless you obtain a receipt from the organization. The receipt must reflect the fair market value of the donation (more on that later).
Limit your cash gifts. You can donate as much cash as you like, but your deduction is limited to no more than 50% of your adjusted gross income. Any excess can be carried over to future tax returns for five years.
Be aware of restrictions on noncash gifts. When donating property (especially used property, like clothes or cars), your deduction is limited to the item's "fair market value." That figure, usually much less than what you paid for it, is the price someone would pay for the item at a used clothing store, consignment or thrift shop, or used car lot. Clothing and household items, such as furniture, electronics and appliances, must be in good condition.
You must obtain an appraisal for any donated item that is worth $5,000 or more. Some charities will pay for appraisals, but find out before you make the donation.
Meet the deadline. You deduct contributions in the year you mail your check or when the donation is charged to your credit card. (This is different from gift tax rules, where the date that matters is when your check is cashed or deposited.)
File the paperwork. If your total deduction for the year for all noncash charitable contributions is more than $500, you must file Form 8283 with your tax return.
With so many rules pertaining to charitable contributions, it's easy to make a mistake. Be sure to talk with your tax advisor before making a large contribution, and have him or her complete your tax return for you.
Originally published in Inside Personal Finance May 2011
This material was prepared for informational and/or educational purposes only. Neither Edelman Financial Services LLC nor its affiliates offer tax or legal advice. Be sure to consult with a qualified tax or legal professional regarding the best options for your particular circumstances.