December is the Time to Give

Question: Every December I donate money to various charities.  How do I verify that a charity is recognized by the IRS and eligible to receive tax deductible contributions? 

Answer:   The IRS allows you to deduct contributions to “qualified” organizations, which include religious organizations; Federal, State, and local governments; non-profit schools and hospitals; public parks and recreation facilities; Community Foundations; Salvation Army, Red Cross, Goodwill Industries, United Way, Boy Scouts, Girl Scouts, Boys and Girls Clubs of America, and similar charities; War Veterans groups; and certain charitable organizations designated as “501(c)3” organizations by the IRS.  The term “501(c)3” refers to the governing Section of the Internal Revenue Code.  There are many charitable organizations that are tax-exempt but not qualified to receive tax-deductible donations, including civic leagues, homeowners associations, and social welfare organizations. The IRS website offers “EO Select Check” (Exempt Organizations Select Check), which allows you to search for and select an exempt organization and check to see if the charity is eligible to receive tax-deductible charitable contributions.   Be aware  a search of the site for exempt organizations in Monterey, CA yields 109 “non-profits” whose exempt status has been revoked, and only 11 of those have been reinstated. The IRS says you may rely on this list to determine the deductibility of your contributions.

Question: How much can I donate and how much can I deduct on my tax return?  

Answer: Different gifts have different rules, outlined below:

Non-cash donations:  The IRS allows you to deduct the fair market value of what you donate, which they define as “The price at which property would change 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.” Get a receipt before you file your return.  If the value of the property (or properties) is over $5,000 ($10,000 for non-publicly traded stock) you also need a qualified appraisal.  Take pictures of items that you donate and keep them with your receipts and appraisals, in case you are audited.  Donated items must be in good or better condition.

Vehicles: You can still donate your old car or boat, but in general, you can only deduct the amount that the charity sells it for.  And you must get the right paperwork from the charity, including IRS Form 1098-C, or a statement containing the same information.  If the charity uses your vehicle instead of selling it, you can deduct the fair market value at the time of your contribution, and the charity must provide written acknowledgement of what they are using it for, and for how long.  Check with your tax professional.

Money: When you donate dollars to charity keep a copy of your cancelled check or credit card statement showing the name of the charity and amount and get a letter from the charity acknowledging your gift.  The letter must include a description and good faith estimate of the fair market value of whatever goods and services you received in return.  You can then deduct the difference between the amount of your gift and the value of whatever you received.

Appreciated Stocks: You can deduct the full market value of donated shares.  Your deduction is limited to 30% of your adjusted gross income.  For publicly trade stocks, you don’t need an appraisal. 


 

Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment advisor and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning.  Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to ken@montereypw.com.