Show #264 Airing Sunday, July 25, 2004
There are lots of folks who can’t afford basic necessities like medical care and food. A number of good charitable organizations are providing needed assistance. But these groups need our help. And to encourage us to donate, Uncle Sam offers some nice tax breaks. Here to explain is my law partner, Laurie Steiner.
Question: How does Uncle Sam encourage crahitable gifts?
Answer: Uncle Sam will pay you to contribute to charity, by providing a nice income tax deduction. Let’s say you give $100 to the Alzheimer’s Association. If you’re in the 28% income tax bracket, Uncle Sam will give you $28 off your taxes next April.
Question: How does that work?
Answer: You get to deduct the charitable gift from your income. So if you give $100, you don’t pay tax on $100 of your income. That saves you $28 of taxes when you do your income tax return.
Question: Are there some types of assets that are better to give to charity than others? Answer: Yes. Appreciated assets, assets that have gone up in value. Let’s say you have stocks that you bought for $10 many years ago, and today are worth $100. They’ve gone up $90. When you sell them, you’ll pay capital gain tax of 15% on the amount it appreciated above its cost.
But if you give the appreciated stock to charity, the charity gets the entire $100. The charity doesn’t have to pay capital gain tax. And you get the tax deduction for the entire $100.
Question: Does the government give you a deduction for contributing clothing, furniture and other "things"?
Answer: Yes. You get a deduction from your income taxes for the “fair market value” of “in kind” contributions. So, for example, if you donate clothing to the Salvation Army, you can deduct the market value of the items.
Make sure you get a receipt from the charity and keep it with your important papers. And don’t get greedy. You can only deduct the fair market value. Often the charity will give you a written estimate. Otherwise, try to get independent verification. Maybe check ads for similar items in the newspaper, on e-bay, or in thrift stores. Check the blue book value if you’re contributing an old car. Keep the proof of the value with your tax papers, in case the IRS questions you.
Question: Can we deduct an amount for the time we spend volunteering for a charity?
Answer: No. But you can deduct out-of-pocket expenses, such as your cost for parking and even the cost of your car’s gas to drive to the charitable site.
Question: Aren't there lots of charitable scams trying to separate us from our money?
Answer: Yes. You must be very careful. Check out a charity carefully before contributing.
Two places to check: Go to the Ohio Attorney General’s website, and the Better Business Bureau, www.bbb.org
Uncle Sam wants you to help others in need. And he’ll pay you, by providing some nice tax breaks. For more information about how the government will subsidize your charitable giving, get IRS Publication 526, Charitable Contributions, by calling 1-800-829-1040, or at the IRS’ website, www.irs.gov.
