What does giving to charity mean to you? Perhaps you think of dropping your change into a can at a local shop or placing a few dollars
into a Salvation Army kettle during the holidays. Maybe you’ve bought Girl Scout cookies or donated clothing to a local relief
organization. Opportunities for giving surround us each day.
The greatest benefit of charitable giving is the knowledge that you’ve helped make a difference in the lives of others. Charitable giving
can also provide tax breaks, if you know how to give and how to keep track of what you’ve donated.
Choosing a Charity
The first step is to identify the organizations you wish to support. If you do a little research, you’ll soon find that there are thousands of
charitable organizations to choose from, supporting such causes as environmental protection, curing illness, or improving the lives of
children. Start by identifying what’s most important to you.
Next you’ll want to do some research. If you want to claim a tax deduction for your gift, you’ll need to make sure that you’re dealing
with a registered charity to satisfy IRS rules. You can begin by contacting your local charity registration office, which is typically a
division of your state attorney general’s office. Your local Better Business Bureau (BBB) can also provide information on charities.
Once you’ve got a short list of registered organizations, contact each one and ask for a copy of its annual report. This report explains
the charity’s mission, lists its key personnel, and provides a breakdown of how donations are spent. Pay careful attention to marketing
and administrative expenses, which can vary widely among organizations. You’ll probably want the majority of your money to go to
those who need it. Keep in mind, however, that high expenses related to awareness campaigns are designed to educate the public and
increase donations, so they might not be cause for concern.
The BBB Wise Giving Alliance also provides independent evaluations of popular charities. These reports are available online at
Rules for Giving
You’re free to give as much to charity as you like. However, you’ll need to follow IRS rules and keep records of your gifts to claim tax
deductions. Monetary contributions are the easiest to report. Always pay by check and make the check payable directly to the charity,
not to the person soliciting the contribution or to a donation collection agency. Ask for a receipt and save it along with your canceled
check and your bank account statements.
A deduction is no longer allowed for monetary gifts unless accompanied by a bank record or a written receipt from the charity indicating
the amount of the contribution, date of the donation, and name of the charity. If your contribution exceeds $250 in value, either in
cash, certain property, or out-of-pocket expenses that are attributable to volunteer work, you will also need to obtain a written
description of your gift. This description must contain an acknowledgement from the charity of your contribution, a description of
noncash items donated, a statement of whether the charity provided goods or services in exchange for the donation, and — if goods or
services were provided — a good-faith estimate of their value.
The IRS has ruled that the fair market value of goods and services should be deducted from any charitable contributions used to offset
taxes. Keep in mind that fair market value may differ from what you pay for the goods or services offered. A good example of this is the
popular practice of selling candy bars. Let’s say that you pay $2 for a candy bar to benefit a local school. The fair market value of the
candy is actually 75 cents, were you to purchase it at a local store. That 75 cents is deducted from your contribution, leaving you with a
deduction of $1.25. To simplify your tax reporting, it might be best to turn down any goods or services of more than nominal value that
a charity offers in exchange for your gift.
The Internet offers a wealth of information on charities and a few ways to make a difference. Some sites to
www.networkforgood.org — This site provides an online database of hundreds of thousands of charities
and many volunteer opportunities. Users can search the database by ZIP code, type of organization, or
keyword. Links are provided to www.guidestar.org, which offers copies of federal tax forms filed by
charitable groups that allow users to compare organizations. You can also make contributions by credit card.
www.igive.com — This site allows you to benefit charity by shopping online. Registered users can choose
from hundreds of online retailers and have a percentage of each purchase sent to the charity of their choice.
iGive currently lists thousands of charitable organizations, including the Red Cross and Special Olympics, and
allows you to list registered local organizations.
To declare charitable gifts of certain noncash items worth more than $500 (such as used clothing or furniture), you must supply cost
and acquisition information for the items given. When claiming single noncash gifts worth more than $5,000 (excluding publicly traded
stock), you must include an appraisal of the gift’s value with your tax return.
Two such gifts to carefully consider are used items and time. Items such as computers and clothing are subject to depreciation over
time, so you won’t be able to declare your purchase price as a deduction. Time spent volunteering typically isn’t deductible; however,
expenses associated with volunteering, such as transportation and materials, are deductible.
Items with the potential for appreciation are the best gifts for tax-conscious charitable givers. You can avoid capital gains taxes by
donating assets that have appreciated in value to charities. Outside of a charitable trust or foundation, this is one of the most effective
ways to reduce taxes through charitable contributions. You can donate appreciated stock, artwork, antiques, collectibles, or other
noncash items as long as you have owned them for at least one year. You can deduct the full fair market value of the gift from your
taxes, and any appreciation will escape taxation.
Consider selling appreciable assets you have owned for a year that have lost value, with the proceeds of the sale donated to charity.
This allows you to remove the full fair market value of the assets from your taxes while still claiming a capital loss on the depreciation.
In addition to direct gifts to charity, other options include a charitable remainder or charitable lead trusts or setting up a private
foundation. However, complex rules govern the creation and maintenance of these vehicles. Thus, tax and legal advisors are necessary
to determine if a trust or foundation is appropriate for your situation.
Charitable donations are an excellent way to reduce your taxes and make a difference in the lives of others. Remember, though, that
charitable giving should be a year-round concern, not something you only think about during the holidays or at tax time.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Barnes Capital Group, a Registered Investment Advisor. Barnes Capital Group is a separate entity from LPL Financial.