Charitable giving is more than answering a ringing bell with your spare change when you leave the shopping malls. It’s also more than looking for that last-minute tax deduction. While your year-end generosity might benefit you come tax time, it’s equally important to ensure that your donation is well spent.
For your charitable contributions to be tax deductible, the charity must meet IRS requirements to be classified as a tax-exempt organization. With more than 1.4 million nonprofit organizations registered with the IRS, you should find a charity that supports a cause you care about. Reputable nonprofit organizations should be more than happy to provide you with information on its tax status.
When you talk to a solicitor representing a charity, practice caution and never provide personal information, such as your Social Security number, or debit or credit account numbers, if you did not initiate the contact. Unfortunately, unsolicited requests for charitable donations—both by phone and email—could be a scam. It is wise to fully check out the charity before you donate.
You can usually obtain information about a charity’s mission and how your gift will be used on the charity’s website. You may wish to follow up by checking consumer websites like the Better Business Bureau's BBB Wise Giving Alliance at www.bbb.org/us/charity, or Charity Navigator at www.charitynavigator.org. These sites can provide information on the charity’s financial status and how much of the donations go to administrative costs versus their programs or services.
While you can provide a traditional cash donation, you may also be able to give stock, real estate or personal property. You may consider donating to a charity through your estate by way of a trust, charitable gift annuity, or designating a charity as a beneficiary of a life insurance policy. If you choose one of these methods, you should consult a C.P.A. or financial adviser to determine potential income and estate tax consequences based on your individual circumstances.
You should get a receipt from the charity showing their name and the date and amount of your donation. If you follow the IRS’ rules on tax deductions for donations, you should be able to deduct charitable donations as an itemized expense on Schedule A of your Form 1040. The amount of your deduction may be subject to certain limitations, depending on the type of gift, the charitable organization and your adjusted gross income. For detailed information and a list of requirements, see IRS Publication 526, Charitable Contributions.
William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.