Most taxpayers are aware of the income tax deduction for donations to qualified charitable organizations, and many take advantage of this opportunity to benefit a good cause while reducing their tax bill. Charitable giving rose to a record level for the third year in a row in 2016, as an estimated $390 billion was given to charitable causes. However, donating cash to your favorite charity is just one way to take a charitable deduction on your tax return. The following paragraphs summarize a few of the lesser-known charitable giving opportunities:
Out-of-Pocket Expenses – While you cannot deduct the cost of services or time devoted to a charity, you can deduct certain out-of-pocket expenses that you incur while engaging in charitable activities. This includes travel-related costs such as plane tickets, hotels, and meals while you are away from home for charitable purposes. Keep in mind, though, that you cannot claim any deduction if there is a significant element of personal pleasure in the travel.
Appreciated Stock – If you were planning on giving a certain amount of cash to your favorite charity, consider giving the same amount in appreciated stock that has been held for at least a year. This produces a double tax benefit, as you are allowed to claim a deduction for the full fair market value of the stock while excluding the gain on the appreciation from your income. The charity can then sell the stock for its full value and receive the same amount of cash as it would have received if you had made the gift in cash.
Motor Vehicles & Boats – Donating a used car or boat to a charity can also yield a charitable deduction if you obtain the proper documentation. Assuming the charitable organization then sells the vehicle or boat, your charitable deduction is limited to the lesser of the value of the vehicle on the date of donation or the proceeds that the charity received from the sale.
Clothing & Household Items – Provided that the clothing and household items are in good used condition or better, you are allowed a deduction for giving these items to a donation center that is a qualified charitable organization. If the value of the items you donate in a year is over $500, the details of each donation must be disclosed separately on your tax return.
For all charitable gifts, you should be sure to maintain detailed records and try to obtain receipts or letters from the charity whenever possible. These will help to substantiate your deduction amounts in case the IRS ever questions them.
If you would like more information or have any questions on charitable giving opportunities and how they might apply to your tax situation, please contact Jonathan Swartz by calling 770-396-2200.