Charitable Giving-What Are the Rules Now?

We've had some crackdowns on charitable giving handed to us from the IRS and Congress. Apparently, someone was overstating their deductions … so our hands are now slapped. There are four categories to address here, along with a couple notes, so cut to the one that applies to you and skip the rest.

Cars: Donations of vehicles get special scrutiny. If the charity sells the vehicle, it reports back to you the amount of the sales price, and that is your deduction. If the charity retains your vehicle for its own use, or uses it as part of its purposes, for example, giving cars to single moms, then you may deduct the fair market value. Go to the Kelley Blue Book site, search for the place to get a private party retail value, and enter the equipment, options, mileage, and condition. Print this and keep in your tax records.

Stuff except cars: Donations of other items require more reporting if they accumulate more than $500 for the year. The dates, value, and some detail of what's donated, and the name and address of the organization is required and reported. All items must be in good condition. IRS has yet to rule what that means. Does it mean good for a 1965 black and white TV set? Or good in relation to now? No one knows. If anything is valued at over $5000, there must be a professional appraisal.

Stocks: Do give stocks or funds that have capital gains associated with them, since you'll avoid the tax and can deduct the full value of the shares given. The shares do require appraisal, so have your broker provide that to you. If your stocks or shares have declined in value, sell them first so that we can take the tax loss, and then give the cash.

Cash: ALL cash/check/credit card contributions now require documentation. There must be a receipt, bank account entry, or letter that accompanies the donation, no matter how small! Any donations of $250 or more MUST have a letter from the charity documenting the donation.

Note to business owners: Often, an owner wonders if they can donate inventory or equipment. The answer is yes, but you don't get much of anything for it except a wam feeling. Equipment donations are limited to your cost basis. So if the equipment is depreciated, the basis is now zero, and zero is your max deduction. For inventory, it's your cost. And usually, it's inventory that's already been removed from the books as obsolete or unsalable, so it also has no value.

Time: Trick entry. You cannot donate your time and claim a deduction. Your time is free, unless you're recording income for it. Example, if I do a tax return for a pastor, it costs me nothing. I have no deduction. Unless I'm willing to record as income the $400 I would have charged him, and can then record the donation. But that's not accomplishing anything. You can claim your mileage, however, in doing charitable work, and any out of pocket expenses that are ordinary and necessary in performing charitable duties.