Helping others can also help yourself with your
taxes. Here are seven ways to maximize your deductions:
1. Load up on donations at year-end. The
holidays are a traditional time to give gifts to charity and with good
reason. Not only do you help a deserving cause, you get immediate tax gratification:
The gifts you give during the holiday season reduce your tax bill on April
15. Note that charitable donations are deductible only if you itemize
deductions.
2. When in doubt, charge it. Usually, you will
make contributions to charities by check or in cash, but you can also charge
donations via a valid credit card. Any amount posted to your December bill
is deductible on your return - even if you don't actually pay off the charge
until the following year.
3. Give away stock instead of cash. If you
have stocks or mutual funds that have accumulated unrealized gains, and you have
owned them for more than one year, you can receive a charitable deduction for
the full fair market value of the stock without paying tax on the
capital gain. The more unrealized gain you have in the security, the
more this tax break is worth. In effect, you are deducting an amount that
would have been paid to the government as a capital gains tax.
4. Donate your old car to charity. This
deduction has been significantly reduced for 2005 by the American Jobs Creation
Act of 2004 . If the charity sells your car without making any significant
improvements or repairs, your deduction is limited to the gross proceeds that
the charity receives. Since most charities wholesale or auction donated
autos, your deduction may be limited to the salvage value of the auto rather
than the fair market value that was allowed in prior years. The new rules
apply to vehicles with a claimed value in excess of $500.
5. Be careful with gifts of art. A special tax
rule comes into play when you donate art or collectibles to a charity. If
the charity does not use the gift to further its tax-exempt function, your
deduction is limited to the property's basis instead of its fair market
value. For example, if you donate a painting to your alma mater, you
should specify in writing that the painting must be hung where students can
easily view it and study it.
6. Deduct expenses while doing volunteer work. You
are allowed to deduct the expenses incurred while performing volunteer work for
a qualified organization. For example, if you travel by car on behalf of a
charity, you may deduct your charity-related auto expenses or take a standard
deduction of 14 cents per mile. Other deductible expenses include
uniforms, supplies, meals and lodging, and all other expenses incurred on behalf
of the charity.
7. Don't forget the tax benefits of a fundraiser. If
you buy a raffle ticket, attend a charity ball, buy something in a silent
auction, you are allowed to deduct, as a charitable donation, the difference
between the amount you paid and the actual value of the goods or services you
received. For example, if you buy $100 of raffle tickets for an auto, and
the statistical value of those tickets is $20, you are entitled to a deduction
of $80.
CAUTIONS
A. You must have written
substantiation for charitable gifts that exceed $250. A cancelled check is
not, by itself, acceptable.
B. If you donate property valued at
$5,000 or more, you are required to obtain an appraisal by a qualified,
licensed, appraiser.
C. Donations to political parties or
candidates are not deductible.
D. If you gift is substantial, be sure
that the charity is a qualified charity. There are many non-profit
organizations that are not qualified to receive deductible gives.