Wednesday, December 13, 2000
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Wednesday, December 13, 2000 |
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Donations could bring tax benefits The holiday season has a way of bringing out the best in people particularly in terms of helping others. Each year, in efforts to help the less fortunate, millions of Americans contribute to charities. And those who
give are rewarded with tax deductions in return for their generosity,
reports the Georgia Society of CPAs. Here is what you need to know to
make the most of charitable contributions. Tax law permits taxpayers to deduct charitable contributions as itemized deductions, as long as they are made to a non-profit organization with tax-exempt status. To determine whether your chosen charity qualifies, visit the IRS Web site at www.irs.ustreas.gov/bus_info/eo/eosearch.html, where you can search by charity name or city and state. If you prefer, you may call 1-800-829-3676 to receive a free copy of Publication 78, Charitable Contributions: A Cumulative List of Organizations. Because gifts to qualified organizations are tax deductible, your actual cost for the donation is reduced by your tax savings. For example, if you are in the 28 percent tax bracket, the actual cost of a $100 donation is $72 ($100 less the $28 in tax savings). TIMING AND CONTRIBUTION LIMITS ARE IMPORTANT A contribution is deductible in the year you make it. As long as you date your check in 2000 and mail your donation by December 31, 2000, you can deduct your contribution on your tax return for 2000, even if the charity does not receive your check until January. Similarly, a contribution made on a credit card before year end is also deductible on your 2000 tax return, even if you don't make payment to the credit card company until the next year. Under current tax law, you may deduct up to 50 percent of your adjusted gross income (AGI) for gifts of cash to most charities. If you give more than 50 percent, the excess may be carried forward into the next tax year. Lower limits may apply to contributions to certain types of organizations or for certain contributions of property. LARS Cash isn't the only way you can help your favorite charities and get a tax break. In fact, when you donate property that has appreciated in value, you stand to save even more. That's because you get a deduction for the full fair market value of property you have held for longer than one year, and you avoid paying capital gains tax on the appreciated value. The deduction is limited to 30 percent of your AGI. Any excess amount may be carried over five years. For example, suppose stock you bought four years ago for $5,000 is now worth $15,000. First, you get a deduction for the full $15,000 fair market value and, second, you are not taxed on the appreciation. In effect, you receive a deduction for an amount you never reported as income. For traditional non-cash donations (i.e., clothing or furniture) you can deduct the market value of the gifts - what you might pay for them in a consignment shop. For contributions of less than $250, your canceled check is a sufficient record of payment. However, for contributions of $250 or more, you will need a written acknowledgment from the charity showing the organization's name and address, the date of the contribution, and the amount of your cash contribution or a description of the property you donated. The letter must state whether or not you received any goods or services in return for your gift. It is the responsibility of the organization to inform you of the non-deductible portion of your donation. This will be provided in the written acknowledgement from the charity. For example, when you buy a ticket to a benefit concert or dinner dance, you can deduct only that part of the ticket price that exceeds the cost of the entertainment or dinner that you attend. For property donations that exceed $500, you must attach Form 8283, Non-cash Charitable Contributions to your return. If the value of the donated property is over $5,000, you need a written appraisal from a professional appraiser. (There are no appraisal requirements for publicly traded securities for which market quotations are readily available. Non-publicly traded stocks valued at $10,000 or less are exempt from the appraisal requirement.) Taxpayers who plan to contribute large sums to charitable organizations should consult a CPA to discuss additional tax-savings strategies. The GSCPA is the premier professional organization for CPAs in the state of Georgia. With over 10,000 members throughout the state, the purpose of the GSCPA is to promote the study of accountancy and applicable laws, provide continuing professional education, maintain high ethical and work standards, and provide information about accounting issues to the membership and the public. For more information, access our web site at www.gscpa.org. |