7 Ways to Give to Charity and Get a Tax Break for 2015
For many people, buying gifts for friends and family is just the start of holiday giving. The next step is to give to charities or individuals in need of aid. Giving to others can be personally rewarding -- and also financially rewarding, if the donation is tax deductible.
To qualify, donations must go to qualified organizations such as 501(c)(3) nonprofits and some churches. Taxpayers also must itemize deductions, rather than take the standard deduction ($6,300 for individuals and $9,250 for heads of household in 2015). Up to half of adjusted gross income can be deducted for cash donations, and up to 30 percent for property donations. Donations beyond those amounts can roll over and be used for a tax deduction in the next five years. Here are seven ways to give that can get you a tax break.
If a cash donation is less than $250, keep a copy of a bank or credit card statement, canceled check, or letter of acknowledgment. Giving money to a person in need on the street may be commendable, but it's not deductible without a record of the event. Donations of more than $250 require a letter of acknowledgment, which should specify the amount donated and the value of any goods or services received in exchange, such as a T-shirt. That value is subtracted from the donated amount to determine the deduction.
Rather than sell investments such as stocks and bonds and donate the proceeds, consider giving an investment as is -- so long as the position has been held for more than a year and has gained value. That way, the charity receives the full value of the investment and doesn't have to pay taxes on the capital gains when the investment is sold. The donor can write off the full current value of the donated investment. Unlike with cash donations, only 30 percent of adjusted gross income can be deducted when donating investments.
A vehicle's fair market value (the amount an informed buyer would pay for it) determines the value of the corresponding deduction. This may be higher or lower than the Blue Book value, depending on the condition of the vehicle. It also may depend on how the charity uses the donation. If the charity sells the vehicle, the donor may be able to deduct only the selling price. If the donor believes the vehicle is worth more than $5,000, there's another step to a deductible donation: a written report from a qualified appraiser.
The lesser of the fair market value or cost of donated food -- prepared or unprepared -- is deductible. For instance, you cannot deduct the original price of an item bought with a coupon. The organization receiving the food may have guidelines for what types of food it accepts. For example, some food banks accept only nonperishable items, such as canned goods, but can help steer donors toward other organizations that accept prepared food or fresh produce. Receipts from food banks may list only the weight or number of bags or boxes donated; it may be up to the donor to determine and record the value.
To qualify for a tax deduction, donated clothes must be in good, usable condition. There is no fixed formula for calculating value, but it is almost certainly less than the original price. Donors may be able to research and claim the cost of similar clothing sold in thrift or consignment stores, and some charities may be able to value the clothing on behalf of donors and write up a receipt for the donation. Goodwill has a general guide to the value of used clothing. An appraiser must verify the value of goods that are worth more than $500.
Donated toys are treated like donated clothes when it comes to tax deductions: The toys must be in good condition, and the donor can deduct the fair market value. That may be the cost of a similar used toy at a secondhand store, or the price paid for the toy if it is new.
While time spent volunteering for a charitable organization is not tax deductible, volunteers can get a deduction for the drive to and from the volunteer location. The 2015 deduction is 14 cents per mile.
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