Each year, we receive questions about charitable giving. Charitable deductions are a complex area of federal tax law, and what follows are the general rules for 2011. State laws vary and are not part of this discussion.
First answer these questions:
• Who – So called 501(c)(3) organizations are most common such as United Way, Cancer Society. See IRS Publication 78.
• What – Did you give cash or something else?
• Why – Donation intent is important. No quid pro quo allowed.
• When – Donation must be made in your tax year (most of us are on a calendar year).
• Where – A U.S. based charity is the safest. Very few non-U.S. charities qualify.
Gifts of cash are the easiest to prove and deduct. However, you must substantiate them. They must be:
• Supported by a canceled check, credit card receipt or written communication from the charity if under $250;
• Substantiated by the charity if $250 or more.
Gifts of non-cash property are more complex:
Services are the area of most confusion. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.
For long-term capital gains property, such as stocks or bonds held more than one year, you may deduct the current fair market value. For ordinary-income property, such as stocks and bonds held one year or less, inventory, and property subject to depreciation recapture, you generally may deduct only the lesser of fair market value or your tax basis. Generally, use of property, such as us of a vacation home or loan of a painting, qualify for no deduction because it isn’t considered a complete gift. Unless it’s being used by the charity, you generally can deduct only the amount the charity receives when it sells a donated vehicle.
For specific information about what contributions are tax deductible, consult your tax professional, or call Daenen Henderson & Company, LLC at (318) 445-4585.