The end of each year's tax season results in silent celebrations across the nation. If you found little cause to celebrate the end of this year's tax season you might need to consider whether or not you are taking full advantage of opportunities to give to charity. You might find yourself recalling charitable donations you made during the past year and wishing you had handled them differently. Perhaps your timing was off and if you had only made that particular donation one month later, it would have had drastic positive effects on your taxes. You might realize after the fact that your “favorite” charity wasn't actually a charity at all. Too many people discover important details related to their personal or business charitable donation strategy after the fact. If you find yourself in this group, consider the following tips for tax smart charitable giving so that next April you'll not only feel good about your financial contributions to worthwhile charities, but you'll also see those contributions offer the best tax benefits to you and/or your business.
Donating Money: Cash, Check or Card?
Monetary donations are the easiest way to give to charity, but they are also the easiest to lose track of in the midst of all your business dealings. Make sure you keep documentation of your donation for tax purposes. Since 2007, deductions for monetary donations must be substantiated. Eligible documents that will support the deduction include a cancelled check, a credit card receipt, and a written receipt from the charity.
Donating Property: Avoid Paying Capital Gains Tax?
Donating appreciated assets provides an extra benefit of not being taxed on the gain on the sale of the property. For example, making gifts of property such as stocks will result in tax benefits based on the fair market value of the gift (as long as ownership of the property has been held for at least one year). By donating the appreciated stocks rather than selling them and then donating the sale proceeds, paying capital gains tax can be avoided. Donors should be warned that he IRS has strict standards regarding the value of donated property and it's best to involve your advisors when making these types of gifts.
Donating to a Valid Charity: Does the IRS Consider Your Favorite Organization a Charity?
Helping out by donating to a worthy cause or philanthropic group is always appreciated, but for the purposes of tax benefits, charitable donations should be made to qualified organizations. Charitable donations are only deductible for federal income tax purposes if the organization receiving the donation is recognized by the IRS as a public charity under section 501(c)(3) of the Tax Code. It is appropriate to ask your favorite organization to provide you with proof of their valid – and current – tax exempt status.
Tax rules are constantly changing. Regularly reevaluating the legal implications of your charitable donation strategy or your business's charitable donation strategy could help you maximize the advantages. For assistance in updating the legal components of your company's charitable giving strategy, contact HMS Law Group LLP.