The Low Down on Charitable giving this year!
Give it Away-But don’t lose the deduction!
To keep your charity deduction you must win when questioned in an audit. Here’s how…
The general rule in audits is to seek 3rd party valuations, especially for donations. Get them at the time of donation , not later.
1. Valuation and Statements from the charity- $250 or more donated-get receipt showing what you got if anything in return and the value of it. Ex: If you give to public radio, and get that diet CD in return, subtract the value of it from what you gave. Single items over $500.- get an appraisal. You can deduct FMV in most cases.
Trap- IRS will look at subsequent sales to over ride the FMV that you looked up. Better to donate to a charity that will use what you give and not sell it.
I had a client who bought African art and got a letter from the school he donated it to and each year wrote off a much higher FMV. The IRS disallowed it in an audit saying that if it was worth a lot of money, why would you be allowed to buy it cheaply? Use common sense when getting valuations.
2. Publicly traded Stock donations- If you own stock follow this…
a) Stock held >1y and the value went up – Donate the stock and deduct the FMV and do not pay any capital gains tax. WOW and extra deduction.
b) Stock held < 1yr and value went up- Donate the stock pay the tax on the gain, but deduct the FMV.
c) Stk with a loss- Sell the stock to take the loss and then donate the money.
Bonus- but expiring end of 2013- If age 70 1/2 or more, you can transfer $100,000 from your IRA (not 401k) directly to a qualified charity without including it in income.
Always consult an experienced tax professional before you donate to charities!