Charitable Donations Should Be Smart and Generous

We are in the home stretch of the year with only 17 days left of 2014. For many of us, these final days will be glorious but demanding — demanding of our spirits, our patience and, of course, our pocketbooks.

It’s not just loved ones, friends and colleagues on our shopping list. You can hardly open your mailboxes or inbox — or even get through the checkout line — without finding yourself hit up for charitable donations. Philanthropy even has its own post-Thanksgiving day to compete with retailers’ Black Friday and Cyber Monday: it’s called Giving Tuesday. A person dressed up like Santa Claus ringing a bell and standing next to a bucket for spare change outside the grocery is oh, so quaint.

The ease and convenience of giving is a good thing. I simply suggest that you put some preparation and planning into it, just as you would any thoughtful gift. Whether you give a little or give a lot, you are probably primarily driven to help a good cause or the less fortunate. But why not offset some of your tax obligation if you can? The government certainly believes that your taxes are going to a good cause; in this case, you actually have the option of choosing which cause!

Here are some things to consider:

• Compare your standard deduction to your itemized deductions. All taxpayers choose to either take the standard deduction or itemize their deductions when they prepare their taxes. Charitable donations are listed on Schedule A as itemized deductions. Be sure that itemizing will reduce your tax bill more than the standard deduction. Be aware that the IRS considers contributions to some organizations (professional groups, political campaigns and for-profit hospitals, for instance) non-deductible.
• Keep proof of your charitable giving. If you give cash, keep your bank statements, canceled checks or credit card slips as evidence. For gifts of cash or real property of $250 or more, keep the acknowledgment letter that the charity will provide showing the date and value of your donation. For non-cash gifts totaling more than $500 for the year, you’ll need to complete and attach IRS Form 8283 to your tax return. If you donate a car, boat or airplane, you must use IRS Form 1098-C.
• Make the gift before Jan. 1, 2015. If you plan to personally deliver cash or a check, the charity has to receive it by Dec. 31. It is best to mail a check because you can control the postmark date. Mail donations must be postmarked by Dec. 31 and be received by the charity in the ordinary course of mail deliveries. If using a credit card, the donation is made on the date of the charge regardless of when you pay your credit card bill.
• Obtain an independent appraisal for gifts of valuable property. When you give a gift of land, jewelry, furniture or any item worth more than $5,000, the IRS requires an independent appraisal of its value.
• Income limitations. If you contributed a significant amount to charity, you might not be able to deduct all of your donations. There are income limitations depending upon what type of property you gave. If you gave more than you can deduct this year due to income limitations, you can carry forward the excess for up to five years. This is where things can get tricky, so be sure to consult with your tax adviser.
• Do your due diligence. Be sure to verify that all charities are legitimate and watch out for scams and schemes. If you aren’t familiar with the charity, ask for more information, visit their website and be sure to use resources such as the IRS website page for searching approved charities, CharityNavigator.org and GuideStar.org.
• It’s OK to say no. Giving is a little like being on an airplane with a child. Just as you must first secure your own oxygen mask before helping a child with hers, you must first secure your financial situation before giving. You need to safeguard your emergency cash fund and pay off high-interest debts before considering charitable giving. It’s better for you and your favorite charities in the long run — financially secure individuals are better donors. Besides, you can always donate your time to make a difference for the causes that you are passionate about.

Your financial and tax advisers can help you and your family determine an appropriate level of charitable giving.

Phoebe Venable, chartered financial analyst, is President & COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.