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Making a charitable donation is not only a chance to make a difference: it’s also an excellent way to reduce your tax burden for the year. The tax benefit is considered a compelling reason for making charitable deductions. A tax deduction for charitable giving isn’t guaranteed just because you’re feeling generous, you should consider the following:

  1. Itemize. In order to claim a charitable deduction on your tax return, you must itemize your deductions.
  2. Choose carefully. Only donations to qualified charitable organizations are deductible. If you’re not sure whether an organization is qualified, ask to see their letter from the IRS (many organizations will actually post their letters on their web site). If that isn’t possible, you can search online. Churches, synagogues, temples and mosques are considered de facto charitable organizations and are eligible to receive deductible donations.
  3. Get a receipt – even for cash. Cash deductions, regardless of the amount, must be substantiated by a bank record (such as a canceled check or credit card receipt, clearly annotated with the name of the charity) or in letter from the organization. The letter must include the date, the amount and the organization that received the donation. You don’t have to submit the letter along with your return but you need to be prepared to show it at audit.
  4. Payroll deductions. Many employees rely on charitable giving opportunities available through their employer. If you make a contribution by payroll deduction, your pay stub, form W-2 or other document furnished by your employer will show the total amount withheld as a charitable donation and the pledge card that shows the name of the charity would substantiate your charitable deduction with the IRS if you were audited.
  5. Pay attention to the value of any incentives. A charitable donation is deductible only to the extent that the donation exceeds the value of any goods or services received in exchange. If you make a donation and receive something in exchange – anything from a coffee mug to a dinner – you can deduct the cost of your donation less the value of the item received. If you’re not sure of the value of an item or service received after a donation, just ask. Most charitable organizations will do the math for you and document the value of your donation on their thank you letter or receipt.
  6. Consider donating appreciated assets. Donating property that has appreciated in value, like stocks, can result in a double benefit. Not only can you deduct the fair market value of the property (so long as you’ve owned it for at least one year), you avoid paying capital gains tax. Normally, appreciated property is subject to capital gains tax at disposition. There is an exception for donations to charitable organizations: you escape paying capital gains tax altogether.
  7. You can’t deduct the value of your time. The IRS does not allow a charitable deduction for volunteering your services. The good news is that out of pocket expenses relating to volunteering so long as they are unreimbursed; directly connected with the services; expenses you had only because of the services you gave; and not personal, living, or family expenses. Out of pocket charitable expense which might be deductible include the cost of transportation (including parking fees and tolls); travel expenses while you are away from home performing services for a charitable organization; unreimbursed uniforms or other related clothing worn as part of your charitable service; and supplies used in the performance of your services. As with other donations, keep good records since documentation is key.
  8. Document the value of your gift. Good records are important when it comes to charitable giving, especially non-cash items. You must be able to substantiate the value of your donation. You can generally take a deduction for the fair market value of the items, or what the item would sell for in its current condition, but you’ll want to be able to establish an appropriate value. If self-documenting the donation because it’s less than $500, be specific, noting the description and condition of the items. If you contribute property worth more than $5,000, you must obtain a written appraisal of the property’s fair market value.
  9. Limits may apply. There are limits on charitable contributions. You can deduct appreciated capital gains assets up to 20% of AGI; you can deduct non-cash assets worth up to 30% of AGI; and you can deduct cash contributions up to 50% of AGI. If you exceed those limits, you can carry the deduction forward for five years.
  10. Pay attention to the calendar. Contributions are deductible in the year made. To make it count during the tax year, gifts must be made by December 31. That doesn’t necessarily mean cash out of your account. Credit card charges – even if they’re not paid off before the end of the year – are deductible so long as the charge is captured by year end. Similarly, checks which are written and mailed by the end of the year will be deductible for this year even if they aren’t cashed until 2014.