You might not have the holiday spirit just yet. But charities are hoping you'll get in the giving mood soon -- and they're counting on you to help keep them alive and well.
Nearly all charitable organizations make a big push for donations at the end of each year. They want to capitalize on the time left for donors to make tax-deductible gifts for the year.
Conversely, as a donor, you want to make the most of the donations you make. So here are a few pointers on managing your charitable giving as 2007 draws to a close.
Know your charity
To get a tax deduction for your donation, you have to choose a qualified charity, also known as a 501(c)(3) organization. Most churches, schools, and hospitals qualify for tax deductions. If you're not sure, you can look them up using this IRS website.
You will have other types of organizations clamoring for cash as well. With the 2008 election season looming, political fundraisers are multiplying. In addition to direct solicitation, you might get a request from your employer to give through a political action committee (PAC). According to the Washington Post, over a dozen corporate PACs contributed $1 million or more to federal campaigns in 2006, with UPS
Know how to give
Cash is the easiest gift to make, but it may not be the best way to give. As December's issue of the Fool's Green Light newsletter will discuss in detail, making stock gifts can be even better for your taxes. Not only do you get a deduction for your donation, but you may also avoid paying capital gains tax on the money you've made in the stock. That's a win-win scenario for everyone.
A recent innovation in giving is set to expire at the end of 2007. For now, you can give up to $100,000 to charity from your IRA without having to pay tax on the distribution. While you won't get an additional tax deduction, it still saves you the taxes you'd normally have to pay on money you take out of your IRA. That's especially useful for those whom the IRS forces to withdraw money from their retirement accounts anyway.
Know what to get back
Unfortunately, the IRS may question your charitable deductions, especially if they're extensive. So be sure you have the proper documentation. In most cases, that is an acknowledgment letter from the charity stating the amount of your gift along with any compensation you received in return. Keep those letters with your other tax information. If you make gifts of property, such as clothing or your car, you may need other documentation.
So as the holiday season moves into high gear, get ready for the inevitable requests you'll receive from charities. By staying on top of the ever-changing tax rules on contributions, you can make sure you get full value for your donations.
Check out these articles to learn more about:
- Making charitable pledges
- How getting rid of your stuff helps others and yourself
- What charity means for big investors.
