The Update

Charitable Giving: What You Can And Can’t Deduct

Helping others financially is a wonderful thing in and of itself, and the tax deduction is a nice benefit, too. But don’t assume that just because you’ve donated to a worthy cause, everything you donate is tax deductible. It isn’t.

501(c)(3)

The only way your donation is tax deductible is if the recipient is a 501(c)(3) organization, or a registered public charity. It’s not enough that an organization is a not-for-profit, tax-exempt entity. Your donation needs to be to a registered public charity in order for you to be able to claim a deduction.

Often, a charitable organization will thank its donors (or encourage them to give in the first place) by providing a gift, dinner or premium. The value of whatever you receive in return for your donation should be deducted from the amount you claim on your tax return. While an iPod or similar product might be easy to put a dollar amount to, other gifts, such as a dinner you attend, are not so easy to evaluate. Instead, ask the organization to provide you with a letter stating the value of anything you’ve received from them.

Receipts

Keep receipts for everything you’ve donated, and never give cash, which is hard to track or show proof of if you are audited.

Many charities solicit donors for not only cash, but also cars, boats, stocks and bonds, furniture, and any other goods that have market value. If you’ve donated non-cash items, you can’t just decide what they’re worth. Instead, you need to establish the fair market value, meaning what a buyer would pay for them. If the item or items you’re donating has a value of more than $500, it must be professionally appraised. If it is under $500, you’re on your own, but remember that the replacement value is not what you’re looking for, but actual market value. Clothing and household items must be in good condition if you want them to qualify for a tax deduction. eBay (or a thrift shop) is a good place to go to get an idea of what fair market value is for the items you’re donating. You’ll also find a guide to what clothing and other things are worth at www.salvationarmyusa.org.

Vehicle Donation

The value of a donated car is determined not by the Kelley Blue Book or NADA Guide, but by what the charity sells it for. The only times you can use the full Blue Book or NADA value are when the charity doesn’t intend to sell the car, plans to fix it up before selling or plans to sell the car to a needy person at a discount.

Financial Products

For stocks (and other financial products) you can deduct 100% of what that stock is trading for on the day of your donation. This is a great deal if you have a security that appreciated significantly since you purchased it. By donating the security (rather than selling it and donating the money) you’ve bypassed capital gains tax and can still claim the full amount as a tax deduction.

If You’ve Been Targeted

If you believe you’ve been targeted by a charity scam, there are steps you can take to help various law enforcement agencies catch the scammers. First, report the scam to the FBI. Next, you can alert the FTC at FTC.gov. Finally, if the scam involves financial aid for a recent natural disaster, you can report it to the National Center for Disaster Fraud.

Charity scams vilify a beautiful deed, but you don’t have to let them ruin it for you. Use the advice offered in this guide to help recognize a charity scam and give safely.

If you have had your identity stolen, you could be reimbursed for the cost of recovery up to $5,000. Learn about all your RGCU Debit Card benefits.