GROW RICH WITH CHARITABLE CONTRIBUTIONS

Remember, it’s always better to give than receive. The glory of charitable donations is that you give and receive at the same time.

Charitable contributions offer proof that the Golden Rule is a credo to live by. It not only allows you to feel good about giving, but lets you receive a tax deduction, to boot!

A charitable contribution is a gift to a qualified organization. The tax law allows charitable contributions as itemized deductions. Because these gifts are deductible, the actual cost of the donation is reduced by your savings. For example, if you are in the 25% tax bracket, the actual cost of a $100 donation is only $75 ($100 less the $25 tax savings). As your income tax bracket increases, the real cost of your charitable gift decreases, making contributions more attractive for those in higher brackets. The actual cost to a person in the lowest bracket, 10%, for a $100 contribution is $90. For a person in the highest bracket, 35%, the actual cost is only $65.

So, maybe you’ve noticed something: thanks to all the tax cuts, the after-tax cost of a contribution is actually rising as lower tax rates reduce the value of the deduction.

Make Giving a No-Fuss Proposition

A contribution is deductible in the year it is paid. Putting the check in the mail constitutes payment. A contribution made on a credit card is deductible immediately, even if payment to the credit card company is made in a later year.

Where Your Gifts Can Go

You can deduct contributions only if they are made to or for the use of a qualified recipient. No charitable contribution deduction is allowed for gifts to other kinds of organizations, even if those organizations are exempt from U.S. income tax. Contributions to foreign governments, charities, and private foundations similarly are not allowed. IRS Publication 78 lists the organizations to which contributions are deductible, identifies each by type, and states their corresponding limit of deductibility. Moreover, no charity can take part in any political activity.

An organization could lose its charity status if it devotes a substantial part of its activities to formulating propaganda or otherwise trying to influence legislation. However, an organization, other than a church, may qualify as a charity and still perform some of these activities by keeping its political expenditures to an “insubstantial” part of its activities. Furthermore, donations to needy individuals are not deductible. (Don’t bother getting receipts from panhandlers!)

Limits on Donations

For most people, the limits on charitable contributions don’t apply. Only if you contribute more than 20% of your adjusted gross income to charity is it necessary to be concerned about donation limits. If the contribution is made to a fully accredited charity, the deduction is limited to 50% of your adjusted gross income. For example, if you have an adjusted gross income of $100,000, your deduction limit for that year is $50,000. All is not lost. You can carry forward to subsequent tax years any unused portion of your donations.

The rules on 20% limits and 30% limits are complicated and convoluted. If you are giving to organizations other than those mentioned above, first consult with your tax adviser to determine whether these other ceilings will apply.

If you give more than 50% of your adjusted gross income to charity in one year, the excess is carried over for the next five years. Five-year carryovers are also available for the 20% and 30% limitation groups.

Other Kinds of Donations

If you contribute property owned for more than one year, the value of the deduction is normally equal to the property’s fair market value. You have an advantage when you contribute appreciated property because you get a deduction for the full fair market value of the property. You are not taxed on any of the appreciation, so, in effect, you receive a deduction for an amount that you never reported as income.

Where do you find out the value of property that you give to a charitable organization? You might start with the price list published by the Salvation Army. Don’t forget to print (or copy) any price list you use for future reference. You also will find price lists for donated items under the MISCELLANEOUS menu on the left side of your screen.

Contributing More Than Money

You should clearly contribute — rather than discard in the trash — old clothes, furniture and equipment that you no longer use. If you bring old clothes or furniture to Goodwill or the Salvation Army, make sure that you get a receipt. Never throw such contributions into a bin where no receipt is available. I want you to picture the faces of dead presidents on that receipt. It represents real money in your pocket. If you are in the 25% bracket, a receipt for $1,000 is worth $250 in tax savings to you. You would never leave a store without your change — likewise, never leave a contribution without a receipt.

Don’t forget the mileage deduction for bringing the old clothes to the charity either. You are entitled to a mileage contribution for each charitable mile you use your car to make the contribution. And if you’re transporting a carload of cub scouts or using your car for any other charitable purpose, the mileage deduction is also available. That goes for driving to your church to drop your envelope in the collection.

Alternatively, you could deduct the actual costs of transportation, but you would need receipts to prove them. Unfortunately, you get no deduction for the value of services rendered to the charity or for charitable purposes.

Keep — and Get — Records for Your Donations

Talking about receipts, the Omnibus Budget Reconciliation Act of 1993 (Where do they get these names?) changed the rules for charitable contributions. Now, no deduction is allowed for a separate contribution of $250 or more unless you have a written confirmation from the charity. A canceled check alone is not enough. If the contribution is to a religious organization solely for an intangible religious benefit (annual dues, for example) written proof is still required. All other contributions of cash require the charity to estimate the fair market value of any goods or services given to you in exchange for your contribution.

Moreover, any solicited quid pro quo contributions of more than $75 require the charity to tell you in writing how much is deductible. Eighty percent of the cost that many colleges now charge fans to simply have the right to purchase season tickets to their basketball or football games is deductible. That is because the government considers it a charitable donation to the financial institution. No amount paid for the purchase of tickets is deductible.

BUY SHOPPING SCRIP! The portion of the proceeds that is returned to the charitable organization is deductible by you as a charitable contribution. You have to eat and gas the car, anyway — so here is a way to deduct part of the cost of an otherwise non-deductible purchase.

Remember, it’s always better to give than receive. The glory of charitable donations is that you give and receive at the same time.