Different Types of Charitable Giving
The end of the year is a great time for your clients to think about making a charitable donation. Donations not only aptly express the generosity associated with the holiday season, but they help worthy organizations and provide your client with the opportunity to save on taxes by claiming a charitable deduction. Remind your clients that they can deduct charitable donations only if they itemize deductions on Schedule A of their IRS Form 1040 and that a deduction for a charitable contribution of noncash assets generally cannot be more than 20 to 50 percent of their adjusted gross income. Although contributions of cash or financial accounts are often the first type of donation that comes to mind, you can suggest other opportunities for giving that your clients may not have considered.
Cars
Many organizations accept donations of cars, even if they do not currently run, and many will also take donations of other types of vehicles such as recreational vehicles, trucks, or motorcycles. The donor should transfer the title of the car to the charity and remove the license plate and registration. For the donation to be tax deductible, the charity receiving the donation must be a 501(c)(3) organization. The donor should obtain a written acknowledgement of the donation from the charity. If the charity sells the vehicle, the deduction should generally be for the charity's gross proceeds from the sale, but under some circumstances, a deduction can be claimed for the car's fair market value (i.e., the amount it could be sold for in the open market by a willing seller to a willing buyer) on the date that it is donated. However, if the written acknowledgment indicates that the donated vehicle sold for $500 or less, the donor can claim a deduction for the lesser of the vehicle's fair market value on the date it was donated or $500.
Household Items
Donations of household items such as furniture, appliances, books, and clothing to a 501(c)(3) organization are eligible for a charitable deduction of their fair market value of the items on the date of the donation. Donated household items and clothing must be in good used condition to be eligible for a deduction based on its fair market value. If they are not in good condition, your client must attach a qualified appraisal and IRS Form 8283, Section B to their tax return to claim a deduction of $500 or more.
Building Materials
If your client has materials left over after building a new house or old cabinets or fixtures after a remodeling project, they can donate them to a 501(c)(3) organization that helps families build affordable homes or sells donated materials to raise money for a charitable cause. Like household items, the amount of the deduction is the fair market value of the building materials on the date they are donated.
How Can You Help?
Charitable organizations often operate tight budgets and count on year-end donations to continue their missions. As your clients' trusted advisor, you are often well-acquainted with the major financial decisions that they make, such as purchasing a new car or remodeling their home. You likely helped them determine if the timing was right for those purchases. Similarly, you can help clients achieve their philanthropic goals and lower their tax bill by guiding them in their end-of-year donations. Let's work together to help your clients to create a comprehensive plan that will enable them to fulfill their desires to benefit both charities and their loved ones.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
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