Many have spent the last month racking their brains thinking about gifts for their loved ones, friends or service providers. Yet when it comes to charitable contributions, many simply give at the end of the year without much thought about the tax consequences.
Cash works great, and is most sought after by charitable organizations with tight operating budgets. But try not to use greenbacks, the IRS will disallow contributions made with cash unless there is substantial other documentation available to prove the contribution.
If you give clothing and household items, you may generally take a deduction up to the fair market value of the property. The property must be in good used condition or better, and supported by documentation from the charity about what was received. For substantial deductions, keep a list and maybe even a few photos of what was given to support your deduction.
Cars, boats and planes have their own special rules. A few years back the rules were changed from looking at the wholesale book value to the actual cash proceeds. Your deduction is limited to the actual cash sale proceeds from that asset, which could be much lower than the book value. The charity will send you a form 1098-C which must be attached to your return stating the sale proceeds.
If you donated a week of use in your vacation home for the local church auction you will not get a deduction. The person who steps up at the auction and writes the check for the weekly rental typically gets no deduction either. The only way for the buyer of the week to receive any tax benefit would be if the price paid for the rental was in excess of the fair market value. And in that case, it would be only the excess payment over fair market value that would have any tax benefit.
I frequently get asked about deducting the value of services provided to a qualified charitable organization. The general answer is that you receive no deduction for the value of services contributed to a charitable organization.
Own a business and have excess inventory, gift it. As long as the inventory was valued on the books at the beginning of the year, you may receive a deduction in the year of the gift.
Gifting rules get tricky if you use anything other than cash. Be sure to check with IRS publication 526, your CPA or qualified tax advisor before making any contributions that you are not sure about.
John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA. Visit napierfinancial.com for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Legal counsel should be consulted for specific advice or recommendations about any individual’s personal legal circumstances. Investment and financial planning advice offered through US Financial Advisors and Great Valley Advisor Group, Registered Investment Advisors.
