IRS tightens charitable-gift rules

By Jeff Schnepper

Let's be honest.

Sometimes it really is better to receive. Indeed, the glory of a charitable contribution is that when you give, you get back as well.

Charitable donations are deductible. But, to get the deduction, you have to jump through a lot of Internal Revenue Service hoops. Tax provisions that took effect in January 2007, have increased the documentation all of us must keep in order to claim a charitable deduction.

How you win when you give

If you itemize your deductions for 2008, you get to deduct your charitable contributions. You'll itemize only if the total of your itemized deductions is greater than your standard deduction.

For 2008, that's $10,900 on a joint return, $5,550 for a single. For 2009, that's $11,400 on a joint return, $5,700 for a single.

For years, Congress has been talking about a charitable deduction for non-itemizers, but the provision has yet to be passed.

Each dollar you contribute gives you a tax benefit equal to your marginal tax bracket. Let's say you're in the 25% bracket. A $100 contribution saves you $25 dollars in tax. In the 35% bracket, you save $35. The real cost of your donation is only $65.

If you give more than 20% of your adjusted gross income (AGI) in any given year, you may start to be subject to deduction limits. How much? Let's say your AGI is $100,000, you spend practically nothing. and you have lots of cash that you want to give away to a fully accredited charity. Under that scenario, your deduction for the year would be limited to 50% of your AGI or $50,000.

The rules on 20% limits are complicated and convoluted. If your generosity exceeds that amount, check Publication 526, "Charitable Deductions," or consult with a tax adviser. If your donations are that substantial, you may be able to get free guidance from the charity's professional development officers.

Normally, you get a deduction in the year you make the contribution. That's normally when you mail the check. Many charitable contributions are made in December in order to qualify for the deduction before Jan. 1.

Any excess contributions can be carried forward for the next five years.

You can't deduct a donation made directly to needy individuals who ask for assistance. You also don't get a deduction for your donation of services or the value of the time you contribute to charitable organizations. Check out Publication 78 for the IRS database of organizations to which donations are allowed as deductible contributions.

Never sell stock and give away the cash

Sophisticated taxpayers never write checks when they can contribute appreciated stock or securities. Neither should you.

If you've held the stock for more than one year, you get to deduct the full fair-market value of the security -- without ever having to pay any tax on the appreciation.

Let's say I bought 1,000 shares of stock in a company over a year ago for $14 per share, and it's now worth $20 per share. I get to deduct the full $20,000 without ever paying tax on the $6,000 in appreciation. If I am in the 15% bracket, the move saves me an additional $900 (15% of $6,000) in taxes, further reducing the real net cost of my donation.

Plastic will work just fine

Let's say you don't have any appreciated stock held more than a year or any extra cash. What to do? Put your contribution on a credit card.

A donation made on a say, Visa or MasterCard, is deductible in the year of the charge, even if the actual payment on the card isn't made until the next year. Be sure to keep records of the donation both from the credit card company and the charity. It is especially important now to get the confirmation from the charity.

Empty the closet or gas tank

Some people really don't have much cash, credit or stock. Their solution is to empty their closets. You can deduct the wholesale fair-market value of old clothes, furniture, equipment, etc. given to a charitable organization such as Goodwill or The Salvation Army. Restock your closet with the tax savings from the donation.

Now, however, there is a big "but."

Under the Pension Protection Act of 2006, you can't deduct charitable donations of clothes or household items (such as furnishings, electronics, appliances and linens) unless they're in "good" condition or better. Congress never defined "good," but I suspect my old socks and underwear are out.

Congress did give the IRS the power to issue regulations to deny a deduction for items with "minimal monetary value."

Even if an item is clearly "good," if you claim a value of more than $500, then you must include a qualified appraisal with your return. That's $500 for an item, not total.

Even if no item is valued at more than $500, if the sum of the noncash contributions is more than $500, you will still have to file Form 8283 with the date of the contribution, the date acquired, your cost, the fair-market value, and the method used to determine the fair-market value. Special rules apply to contributions of cars, boats and other items (such as art, jewelry, collections) with a claimed value of more than $5,000.

Don't forget the mileage!

You also want to keep track of your charitable mileage.

For 2008, you get a deduction of 14 cents for each charitable mile you put on your car. It's unchanged for 2009. The mileage for those Girl Scout trips and board meetings will add up.

Five hundred miles a year means a $70 deduction. And, when you consider the cost of gas, a little bit of stroking from the IRS wouldn't be inappropriate.

Always get a receipt

Never throw noncash contributions into an unmanned bin where you can't get a receipt.

No receipt means no deduction. If you're in the 25% bracket, a thousand dollars worth of old clothes tossed in a bin without a receipt is exactly the same as throwing away $250 in cash. So always ask for a receipt and make sure it includes:

• The organization's name.

• The date of the donation.

• The amount of the contribution

A log of any contributions is no longer sufficient.

If the check is to a religious organization solely for an intangible religious benefit, such as annual dues, you're still going to need written proof. Forget about cash in the collection plate. If you want the deduction, drop in a check.

Contributions of cash require the charity to estimate the fair-market value of any goods or services you may have received in exchange for your donation. If you got a dinner out of your donation, the contribution is reduced by the value of the dinner.

Buying season tickets to your college's basketball or football games? Forget about deducting the price of the tickets. But, if they charge you for the right to buy the tickets, under IRS rules 80% of that fee would be allowable.

A break for seniors

Seniors do get a bit of a break on charitable contributions.

Taxpayers age 70 1/2 or older can now contribute up to $100,000 directly from an IRA to a charity without paying tax on the money. This helps taxpayers who don't itemize or who have to exceed a percentage of their adjusted gross income (7.5% for medical expenses, 2% for miscellaneous itemized deductions) in order to claim a deduction. The break is good for 2008 and 2009.

Updated Jan. 2, 2009