Tax Deductions for Charity Donations

If you are planning to take deductions on your taxes for charity donations there are certain steps you have to follow. See the list below for helpful tips.

The tax deduction for making a donation:

1 - You must give to a recognizable 501(c)(3) not-for-profit organization. You can check the status through the IRS website

2 - You must itemize when you file

3 - You need documentation for gifts over $250.00. - the IRS requires a receipt from the organization

4 - Donations under that amount, in order to claim that deduction you need a canceled check, a receipt from the charity or a credit card statement

Another way to get something back is by establishing a charitable annuity or remainder trust. (see additional information below)

- In both instances you must donate a sizable amount of property or money

- For the annuity, the charity then agrees to pay you a set amount every year until your demise

- How the income is taxed will vary depending on your age and the way the annuity has been funded

- The bonus is that you can take the tax deduction for your donation now

The charitable annuity is easy to set up and usually the organization can help you.

However, the charitable remainder requires a lawyer to handle the paperwork because it will be customized to suit your wishes.

- You might be able to control how your gift is to be used, or you can hold on to the donated property until your death. The gift is irrevocable.

- You may be able to give away different types of assets such as art work, cash, stocks that pay dividends, or a house that you may wish to stay in for the time being

- Both types of donations are useful when the economy is bad because it allows you to get a tax deduction for donating assets that you cannot sell - such as artwork, real estate, even a wine collection

- The charitable organization can then sell your assets at bargain prices now or after your death

Additional Information:

The charitable annuity is a way to give a gift to a favorite charity and still receive income for yourself or others. Payments are fixed from the outset and the charity is contractually obligated to make payments even if it has to do so from its general funds. All charities that offer gift annuities provide ways for a donor to see how their income tax situation may be affected by such an agreement.

The charitable remainder trust is an arrangement whereby property or money is donated to a charity but the donor continues to use the property and/or may opt to receive income while living. The charity then receives the principal after a specified peroid of time. The charitable remainder has a variety of tax benefits including having the asset removed from the donor's estate thereby reducing subsequent taxes.

Consult your accountant for further assistance.

Meanwhile, if you need something to drink while thinking about your taxes - see the links below for useful and fun beverage information.