10 Tips to Help Ensure Your Charitable Donations Will Be Tax-Deductible

Your good deed can benefit you as well.

It’s the end of the year, and perhaps you’re feeling generous.

You’d also like to get a tax deduction for your generosity.

Charitable intentions, however, don’t guarantee you’ll get the deduction. For that, you generally must itemize your deductions on Form 1040.

If you’re 70½ or older, you have another option. You can donate money directly from your IRA, and the amount you give (up to $100,000) is not counted as taxable income.

The donation is considered a qualified charitable distribution (QCD) and satisfies your required minimum distribution (RMD) requirements. And you avoid the risk of increasing the amount you pay for Medicare Part B or causing your Social Security benefits to become taxable.

Note: Gifts from your IRA to charity must be transferred directly to the charity; you lose the above benefits if you withdraw money from your IRA and then write a check to the charity. As always, talk to your Financial Planner and tax professional before taking any action.

10 tips on making charitable donations:

Give to qualified charities. Only gifts to eligible organizations are tax deductible. Select Check, a searchable online tool available on irs.gov, lists most eligible organizations. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations even if they are not listed in the tool’s database.

Determine the fair market value. The IRS says the fair market value of clothing, household goods, appliances, furniture, shoes, books and other items is the price a willing buyer would pay for them. Items generally must be in good used condition or better to be deductible. For items worth more than $5,000, you must submit an appraisal. Some charities will pay for an appraisal; find out before you donate. By law, a charity cannot tell you what your donated items are worth. You should determine that with the help of your tax advisor.

The calendar is key. Contributions are deductible in the year made. Thus, donations made via credit card before the end of 2018 count for 2018 even if the credit card bill isn’t paid until 2019. Also, checks count for 2018 if they are mailed in 2018. Contributions made by text message are deductible in the year your contribution is charged to your telephone or wireless account (even though you might pay the bill the following year).

Save your receipts — even for cash gifts. Cash donations, regardless of the amount, must be proven by a bank record such as a canceled check or credit card receipt showing the name of the charity, or a written document from the organization showing its name, the date and the amount donated. For noncash donations worth $250 or more, including clothing and household items, get from the charity a receipt showing its name, date of the gift and a reasonably detailed description of the property. If a donation is left at a charity’s unattended drop site, keep a written record that includes that same information, as well as the fair market value of the property at the time of donation and the method used to determine that value.

Some items have special rules. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. You should get a Form 1098-C or a similar statement from the organization and attach it to your tax return. If your deductions for all noncash contributions total more than $500, you must fill out and submit Form 8283 with your return.

Donations to individuals don’t qualify for a tax deduction. That’s true no matter how deserving you believe an individual to be. This includes handouts to the homeless and office or neighborhood collections for someone experiencing difficult times (perhaps due to illness or a tragedy such as an accident or fire). If the deduction is important to you, consider working with a qualified charity such as the Red Cross, which provides disaster and other relief.

Participate in payroll deductions for charity. Your employer might participate in a charitable giving program that allows you to give directly from your paycheck. If you contribute by payroll deduction, you must retain a pay stub, Form W-2 or other document from the employer showing the total amount withheld, along with the pledge card giving the name of the charity.

Appreciated assets can be valuable. Donating property that has appreciated in value, such as stocks, can provide a double benefit — in that not only can you deduct the fair market value (as long as you’ve owned the property for at least one year), but you will also avoid paying capital gains tax. Normally, appreciated assets are subject to capital gains tax when sold or gifted, but there is an exception for those donated to qualified charities.

You can’t deduct the value of your time. This is true even if you can easily put a dollar value on your time. For example, if you’re a professional — such as a lawyer, doctor or architect — and normally charge $300 per hour for your services, you can’t deduct that amount for donating an hour of service to a charity. However, out-of-pocket costs related to volunteering are deductible, provided they’re not reimbursed to you or considered personal in nature. These might include transportation and travel expenses, uniforms and supplies. As always, documentation is essential.

Your deduction may have limits. If you contribute more than 20 percent of your adjusted gross income (AGI) to charity, some limits may apply. The rules are complicated (ask your accountant), but in general you can deduct appreciated capital gains up to 20 percent of AGI, noncash assets worth up to 30 percent of AGI and cash contributions up to 50 percent of AGI.

This material was prepared for informational and/or educational purposes only. Neither Financial Engines Advisors L.L.C (also referred to as Edelman Financial Engines) nor its affiliates offer tax or legal advice. Be sure to consult with a qualified tax orlegal professional regarding the best options for your particular circumstances.