For many people, buying gifts for friends and family is just the start of holiday giving. The next step is giving to charities or people in need before the end of the tax year. Giving to others can be personally rewarding -- and financially rewarding if the donation is tax deductible. Here are eight tax-smart ways to make donations before the end of the year (checking with a tax professional beforehand is always a good idea).
Eligible tax-deductible donations must go to qualified organizations such as 501(c)(3) nonprofits and some religious institutions. Taxpayers also must itemize deductions rather than take the standard deduction ($6,350 for individuals and $9,350 for heads of household in 2017) and file a federal tax return using Form 1040. Up to half of adjusted gross income under a specific income threshold generally can be deducted for cash donations and up to 30 percent for property donations.
Rather than selling investments such as stocks and bonds and donating the proceeds, consider giving the asset 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 asset is sold. The donor, meanwhile, can write off the full current value of the donated investment.
When donating a vehicle, its fair market value (the amount an informed buyer would pay for it) determines the deduction. This may be higher or lower than the Kelley 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 can deduct the smaller of the sale price or the fair market value. Taxpayers must attach Form 1098-C for donated cars, boats, or airplanes, which is provided by the receiving organization. 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 and an attached Form 8283.
The lesser of the fair market value or cost of donated food -- prepared or unprepared -- is deductible. By way of example, the sale price of an item bought with a coupon is deductible; the original price is not. The organization receiving the food may have guidelines for what types of food it accepts. Some food banks accept only nonperishable items, such as canned goods. 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 or a single item must have an appraised value exceeding $500. There is no fixed formula for calculating the 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.
While time spent volunteering for a charitable organization is not tax deductible, volunteers can take a deduction for the drive to and from the volunteer location. The 2017 deduction is 14 cents a mile.