As you’re completing your 2016 tax return, you may find that you’re missing out on valuable charitable deductions. All because you didn’t organize your donations or keep receipts. Or you gave last year to organizations that don’t qualify as deductible. Or you were so generous that you donated more than you can claim.
To avoid making any of those mistakes for 2017 and beyond, here are seven ways to give wisely and avoid paperwork problems:
1. Choose a manageable number of charities. Many people fall into the habit of donating small amounts to lots of different charities at year’s end and then finding themselves unable to keep track of who got what.
Michael L. Thompson, Chartered Advisor in Philanthropy at Copper Leaf Financial in Williston, Vt., tells his clients to take a step back and ask themselves to think of the two or three most important issues to them. Then, allocate a charity budget accordingly. “One person can’t solve every problem, but one person can make a meaningful difference in areas that he or she really care about,” says Thompson.
A philanthropy adviser can help you make charitable funding choices that suit your interests, needs and priorities.
2. Make sure it will be tax-deductible. Some altruistic groups may do good work, but don’t qualify for a deduction according to the Internal Revenue Service (IRS) rules. IRS Publication 526 has a list of organizations that qualify because they’ve filed the proper paperwork to be registered as a nonprofit. You can also search for organizations at the IRS site
Keep in mind that some groups qualify as charitable donations but purchases from them don’t. For instance, you can deduct a donation to the Girl Scouts of America (a registered nonprofit) but you can’t write off buying Girl Scout cookies because you buy them at fair market value.
3. Write the checks now. By donating near the start of your tax year instead of waiting until the holidays, all your record keeping will be done. This will also keep you from getting swayed by every pull at your heartstrings throughout the year, says Thompson.
4. Get organized through giving sites. Many banking sites such as Capital One offer easy ways to donate to IRS-qualified organizations. You can choose your charity and receive an email receipt for tax filing.
Thompson recommends donor-advised funds, charitable giving vehicles that let you make a contribution (often a minimum of $10,000 or more) eligible for an immediate tax deduction and then recommend grants from the fund to your favorite charities over time. The earnings grow tax-free.
“There are rules to follow, so work with your adviser or local community foundation to help you get it set up and manage it,” says Thompson. You can donate cash, stocks, real estate or other assets.
5. If you plan to donate a significant amount, consider getting professional advice. One type of pro who could help: a philanthropy adviser. This is a financial adviser specializing in organizing and streamlining charitable giving. A philanthropy adviser can help you make charitable funding choices that suit your interests, needs and priorities. You may, for example, want to ensure that your intended gift will fit into your estate planning.
The website of the International Association of Advisors in Philanthropy has a directory that may let you find a suitable professional (Advisors in Philanthropy are scarce in certain parts of the country).
6. File your receipts immediately. Keeping accurate records of contributions, including receipts of acknowledgment from charitable organizations, is critical. According to the IRS, donors must have a bank record or written communication from a charity for any monetary contribution claimed on returns. What’s more, the IRS says, donors are “responsible for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before the donors can claim a charitable contribution on their federal income tax returns.”
Cash donations must be verified by bank records, canceled checks, pay stubs with contribution verifications or other documents verifying the donation.
The IRS also advises you get a receipt for donated gifts of property such as clothing or furniture. The receipt should include the name of the charity, the date the donation was made and a description of the donated items. If you have dropped items off at a donation site, keep a written record of this and the fair market value of the property.. You can find more information about donating by reading IRS Publication 526.
7. Give in other ways. Remember that you can give in ways other than financial. Volunteer or visit the organization to see how you can be helpful. “The size of your donation is less important than your real commitment to the charity,” advises Thompson.
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