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Donating: Can Save You Money

and feel good too!!

 
Donating: Can Save You Money

Why donate to charity?


Many people donate to charity simply because it feels good. But did you know that donating to charity can actually save you money?

How? Because for most charitable donations, you can take a tax deduction (which is a reduction in the amount of income that’s subject to tax). So whether it’s an old car, last year’s clothes, or cash, donating to charity can not only give you the warm fuzzy feel-good feeling, but it can save you come tax time, too.

There are a couple of things you need top know to make sure that you can reap the feel-good benefits and the money-saving tax benefits of a charitable donation.


Understand the tax rules surrounding deductions for charitable donations


  • To get the tax benefit, you have to itemize your income tax deductions. For 2005, the standard deductions were $5,000 for single or married filing separately, $7,300 for head of household, and $10,000 for married filing jointly. That means that to benefit from itemizing, your total deductions should be greater than the standard deduction amount. If you take the standard deduction, you won’t be able to take the tax advantage of donating to charity (though you can still get the feel-good benefit!).

  • Make sure that the organization you’re donating to is qualified by the IRS. If your charity doesn’t qualify, you can’t take the deduction. To find out if your charity qualifies, check out IRS publication number 78.

  • If you’re claiming the donation on your tax return, you must claim the fair market value of the donation. Fair market value is the price at which you could sell the item in the market. To learn about determining the fair market value of your donation for tax purposes, read IRS publication number 561, Determining the Value of Donated Property.

  • If you’re claiming a tax deduction of more than $5,000, you’ll need to have a formal appraisal done on the item(s) you’re donating to prove fair market value. Attach a copy of the appraisal to your tax return.


Investigate the charity


While we’d like to believe that all charitable organizations are angels, alas, they’re not. While some go so far as to run off with your donation for their own benefit, other problems may range from mismanagement to misleading information. Before you donate, check out your charity.

A good starting point is the Better Business Bureau’s Wise Giving Alliance at www.give.org. Find out how much of your donation actually goes to helping the needy, and how much of it is eaten up by the charity’s administrative and other costs. Find out if others have lodged complaints against the charity. Find out how long it’s been operating.


If you do your due diligence in learning the tax rules surrounding charitable donations (or asking your tax accountant about them) and investigating the charity you’re thinking of donating to, you can have the feel-good feeling that comes with doing good and save money, too.
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