Guest post by Lena Rizkallah (learn more about Lena at the end of this post)
Whether it’s for a cause or organization we believe in, or solely for tax purposes, this is the time when many of us make our first and/or final charitable gifts to charity for the year. Here are five smart charitable giving strategies to keep in mind:
1. Clean out your closets! And your kids’ closets, your spouse’s closets and maybe after you pull the Christmas paraphanalia out of the garage, consider reorganizing that space as well. At this time of year, charitable organizations like Goodwill, the Salvation Army and community shelters need old coats, sweaters, jeans, boots and other items of clothing. Just make sure that when you drop off the bags of gently used shoes and clothes, that you get a receipt from the charity with the name of the organization, a description of the items and rough estimate of their value.
Many of these organizations will also happily accept furnitire and household items, and will sometimes even pick up the items. The same documentation rules above apply to furniture but items over $500 will require an assessment and filing IRS form 8283.
2. Stock-it to them! If you are one of the fortunate few with highly appreciated stock in your portfolio, consider making a gift of that appreciated stock to the charity instead of a gift of cash. In that way, you’ll likely make a larger contribution with stock than with cash and avoid paying capital gains tax if you had sold the stock.
Keep in mind that the deduction you receive is based on the type of asset or gift you transfer to the charity. In general, you can deduct a gift of cash up to 50% of your income. For a gift of property and capital gains asset, you can deduct up to 30% and 20% respectively. Any unused portion of the deduction not taken may be carried over into the following years up to five years.
3. Sometimes cash is king! Although charitable giving is reported to be slightly up for the first nine months of 2010, giving in general is significantly down from prior years and charities are still struggling to stay alive. In many cases, the communities they serve deserately need their services. If you are willing and able, it’s a great time to offer cash to your favorite charity. Most charities accept gifts made in cash, by check, credit card or wire transfer. Just be sure to get a receipt from the charity for the cash, or keep your credit card statement, bank record or other receipt as documentation.
4. Remember those donations you made for disaster relief after the devastating earthquake in Haiti? If you made donations between January 1 and March 1 of this year, you had the choice to decide whether to include them as a donation-and charitable deduction- for 2009 or for 2010. Check your records for any receipts of donations you may have made in order to claim them as a charitable deduction this year.
5. Time is money but it’s not a write-off! It’s cool to volunteer but remember that you can’t claim your time as a charitable gift. However, you can deduct all your out-of-pocket expenses, including clothes, mileage, meals and other expenses incurred while volunteering. So although you can’t claim the time you spent building homes for Habitat for Humanity, you can deduct your cool work outfit and supplies. Just make sure you kept your receipts.
Especially in tough economic times, many people might find it more difficult to give to charities. But charitable giving offers significant tax benefits and it’s a great way to support your community. Using some of all of the above strategies, gifting doesn’t have to hurt your wallet either!
About the author
Lena Rizkallah of Mosaic Consulting is an attorney who focuses on legislative developments, tax and fiscal policy, and advanced strategies for investment and retirement planning and products. She also writes and presents on trusts, estate planning and charitable giving arrangements.