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May 22, 2008
MAKING THE MOST OF CHARITABLE CONTRIBUTIONS
This has been a good week for me. I celebrated my 25th law school reunion by going to see the Red Sox play the Milwaukee Brewers, and the Red Sox won. It’s amazing that the bond still exists among a group of people that basically lived together for 4 years, working to make it through law school. My youngest daughter also turned 20 this week!
Now, as I often do, I’d like to give you some information about what you need to do, to maximize your ability to deduct charitable contributions on your income taxes. First, let’s start with a tax tip that will save you money and get more to the charity of your choice.
TAX TIP #1 Donating Appreciated Property – If you have something, something being stock, real estate, antiques… that has gone up in value, giving it away to the charity of your choice makes sense. You get a market value tax deduction and don’t have to recognize the gain as income.
Did you know that if you drop cash into the church collection box, you can’t deduct it on your income taxes? The new record keeping requirement that went into affect for tax year 2007 states that you must either contribute by check, and keep a copy of the check, or get a written receipt from the charity. If you don’t have either of those, you may not deduct the contribution. For contributions over $250, a written acknowledgement is necessary to claim the deduction.
TAX TIP #2 Write Checks When Making a Contribution - I know it takes a little more time to write a check than to reach into your pocket and pull out a few dollars, but it you want to deduct the contribution, that’s what you have to do. Get a written acknowledgement if the gift is over $250.
If you are giving away a car or boat worth more than $500, new rules limit your deduction to the gross proceeds of the sale by the charity. You won’t know how much to deduct until it actually gets sold.
Volunteers are not entitled to a deduction based upon what the value of their time is worth. Unreimbursed out-of-pocket expenses may be deducted as a charitable contribution assuming that you meet the rules mentioned above. Car expenses are treated as unreimbursed expenses and you may either deduct 14 cents per mile or the actual cost of gas and oil.
Lastly, some information on how to report contributions of used clothing. The IRS doesn’t think that your old clothes are worth that much. They recommend that you claim a deduction based upon what the thrift store would sell these items for. I looked at a guide issued by the Salvation Army and at the bottom of the list was Ladies socks. These are valued at between 40 cents and $1.25. The highest value was a home computer that could be valued at up to $500. Here is what you need to do to claim a deduction for used clothing.
· For gifts up to $250 – You need to include the name of the charity, the date and location of the gift and a reasonably detailed description of the property.
· Gifts of at least $250 and less than $500 – You need the three items noted above and a written acknowledgement from the charity that includes a description of the property.
· Gifts Over $500 – You must file form IRS Form 8283 that requires a list of each item, the date that you acquired it, how you acquired it, your cost, it’s fair market value and the method used to determine the fair market value. There are additional requirements for gifts over $5,000.
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org