‘Tis the season…to give to your favorite charities! To claim a contribution on your 2010 tax bill, you have to itemize, get a receipt for donations of $250 or more, and make the donation by Dec. 31st. Charities also have to be qualified (Remember: tax “exempt” does not always mean tax “deductible.”
Play it safe by searching for 501(c)(3) organizations on the IRS’s publication 78, available at irs.gov.), and while many will happily accept everything from your vacation home to your commercial property, here are the three most common ways to make a contribution without a whole lot of effort:
Making a cash donation is the easiest way to give, and get back. For example, a $1000 cash donation would save you $250 in the 25% bracket; $350 in the 35% bracket. Just remember to substantiate your gift with a letter or receipt from the qualified organization, a canceled check or a bank statement showing how much you gave.
While it is often more profitable (and thoughtful) for you to donate used goods to a charity than it is sell them in a garage or yard sale, keep in mind that per 2006 rules, in order for you to claim a deduction on your ‘stuff’ – whether household items, electronics, linens, furniture or clothing – it has to be in good or better condition (unless you’re writing off a single item, appraised at over $500). To determine your item’s fair market value – what it would sell for in a thrift store – use our free ItsDeductible tool.
Giving appreciated securities – such as stocks or mutual fund shares you’ve held for over a year – is one of the best ways to fund your favorite charities because the benefits are twofold: you get to deduct the asset’s market value and you avoid paying capital gains. For example, say you purchased XYZ stock last year for $10,000 and now it’s worth $20,000. If you sold the $20,000 stock instead of donating it, you would pay capital gains tax (15%) on the $10,000 gain. Donate it instead and you’d save $1500 ($10,000 x 15%). Plus, you can deduct the full $20,000. So, if you are in the 25% tax bracket, this could generate another $5,000 in tax savings ($20,000 x 25%), bringing your total tax savings to $6,500.