VISTA, Calif. – Giving to charity can satisfy a desire to give back to communities and help the less fortunate. The Internal Revenue Service provides tax breaks for those who volunteer for or donate to qualified charities.
Qualified organizations include federal, state and local governments and groups operated only for charitable, religious, educational, scientific or literary purposes, or for the prevention of diseases or cruelty to people or animals.
For people who volunteer, time cannot be written off. However, mileage to and from the charity can be written off at 14 cents per mile or the actual cost of oil and gasoline. Out-of-pocket expenses can also be deducted, provided that meals and lodging were not associated with a significant element of personal pleasure, recreation or vacation in the travel.
As an illustration, a reader who sits on the Federal Emergency Management Agency committee of her federally recognized tribe was invited to a conference in Washington, D.C. Her tribe paid for the airfare and hotel stay during the conference. However, she decided to go a day early to meet with delegates from other tribes regarding official business and stay an extra day for sightseeing.
In this instance, her lodging and meals for the prior day are deductible, but not the days for which she is reimbursed or the extra day for sightseeing.
Many people donate goods, such as used clothing, furnishing items or used cars. Sometimes, people donate high value assets, such as antiques, shares of stocks or houses. The fair market value of these items can be written off. “Fair market value” refers to the amount the item can be bought for in an open market, such as a thrift shop or garage sale for household goods and the stock exchange or open auctions for the expensive assets.
However, for used cars, it is the lower of fair market value or the actual price the vehicle was sold. For example, an inoperable used car may have a Kelley Blue Book value of $1,000. However, if the charity could not sell it and ultimately had to junk it, the donor may end up with no deduction at all.
Other times, donors may want to donate properties after their death. One way to do so is to pledge the property, but there is no tax benefit. Another way is for the donor and the charity to invest the money together, so the donor can get a lifetime stream of income from the investment. Upon the death of the donor, the remaining asset then goes to the charity. In this arrangement, the donor will get a partial write-off against the future value of the gift.
Documents are absolutely necessary to back up charitable deductions. For contribution of $250 or more, get a receipt with the organization’s letterhead. If the contribution exceeds $5,000, get an appraisal in addition.
Remember, contributions to individuals, political organizations and candidates cannot be written off. Other non-deductible items include the cost of drawings, bingo or other games of chance.
The actual tax savings to the donor depends on their tax bracket. It is the tax rate at which the donor would have to pay taxes. Hypothetically, for someone in the 30 percent tax bracket, every dollar donated to charity can produce 30 cents of tax savings.
In general, the annual limit on charitable contribution is 20 percent of adjusted gross income. It is taxable income before deductions and exemptions.