Some thoughts on how you can receive a tax deduction for your charitable donations.
While the focus of this guest post by Matt Robinson is on the tax implications of donating to Haiti (along with various views on the subject), this blog wholeheartedly encourages everyone to make a donation to Haiti’s cause.
We’ve all heard about the devastating earthquake that hit Haiti, where thousands died and many were injured, and they need our help. America has donated millions both publicly and privately. Two senators, showing bipartisan support, rushed to get a bill passed that would allow individuals who donated in 2010 to take a tax deduction on their 2009 tax filing. Here are a few details and recommendations to follow about this new tax deduction:
Tax Deductible Donations To Haiti: Points To Consider
- As a taxpayer, you can claim these tax deductions if you donate after January 11th, 2010 but before March 1st, 2010.
- Contributions made by an SMS text message, check, debit card, or credit card will qualify.
- You can also deduct these contributions on your 2010 tax return if you prefer, instead of your 2009 tax return if you have already filed.
- Understand that you cannot take the same deductions for contributions to Haiti on both your 2009 and 2010 tax returns!
- Make sure your donation goes to a qualified charity, which you can search for here, otherwise, please visit USAID.gov.
- Understand as well, that a donation to a foreign organization is typically not tax deductible.
- Keep a record of any charitable donation you give or of receipts you have, just in case you are audited.
One of the issues with this deduction is that it will not apply to about 66% of taxpayers. Why? About 66% of taxpayers only take the standard deduction — which means that they DO NOT itemize deductions. Unfortunately, those who don’t itemize won’t be able to lower their taxes through charitable giving unless their donation amount, or the culmination of their deductions is larger than their standard deduction. Note that the standard deduction is dependent on your filing status and also your age.
Nevertheless, you should give from your heart and not because you want a tax deduction.
Another important question that some people may have has to do with giving during a time when the U.S. economy is struggling. With many charities and non-profits hurting, will Americans (with the new tax provision) be directing donations away from other important causes and charities? Why doesn’t the IRS create special tax deductions for other countries that are poverty-stricken — such as those in Africa?
Other Ways to Maximize Deductions With Donations
There are other ways to maximize deductions with charitable donations — but make sure you itemize your deductions so that you can claim them.
If you are itemizing deductions, it is best to give non-cash items away to charities. For example, many IRS approved charities will take non-cash items such as stock, cars, furniture and more. Here are some ideas of what you can give away:
- Stock: If you’ve had a year of gains on your stock, you can donate the stock, avoid capital gains taxes, and yet realize the total value in terms of a deduction on your tax return. The nice thing about this, is that you are able to benefit in two ways — that is, you avoid paying the capital gains tax, and you also benefit from the tax deduction. One important note here is that you must make sure that the stock is held for more than a year, otherwise you will not qualify for the “qualified appreciated stock deduction.”
- Items Stored In Your Attic or Garage: How about cleaning out your attic or basement, and donating old furniture, lamps, toys and even clothes to Goodwill, the Salvation Army, or even an organization that will help Haiti? Donating is a good idea because if you sold these items at a tag sale you would most likely get less than the fair market value of these items. What is fair-market value? Fair-market value, defined by the IRS, is “the price at which property changes hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.” If you have more questions about this, look into Publication 17 from the IRS.
No matter how you are donating, make sure that you have good records or receipts. Not having a record or a receipt will make it impossible for you to defend yourself if you are audited by the IRS.
Matt Robinson is a tax accountant at Tax Debt Help. He provides advice and professional IRS debt help for taxpayers facing major IRS tax debt problems.