Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, September 18, 1995 TAG: 9509180121
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
As long as you itemize on your income tax return, you can claim a tax deduction for your charitable contributions. This reduces your taxable income, according to a report from the Virginia Society of Certified Public Accountants.
Suppose you make a donation of $100 to a qualified charitable organization. If you are in the bracket in which you pay 31 percent of your income in federal taxes, you may save up to $31 on your tax bill.
The amount you save, of course, depends on your tax bracket. If you are in the 36 percent bracket, you may save up to $36; if you are in the 15 percent bracket, you will save only $15 by making a $100 contribution
One hitch is that the gift must go to what the Internal Revenue Service terms as a qualified organization.
The CPAs said that donating money directly to individuals, even if they are sick, disabled or homeless, will not entitle you to a tax deduction.
But F. Fulton Galer, a certified public accountant with the Roanoke firm of McLeod & Co., said there is a way around this restriction if a church or qualified organization is spearheading the drive to help a troubled person or family.
He tells his clients to make the check payable to the church or other organization. That provides a tax deduction for the donor. The check cannot be made out to the family.
Qualified organizations include nonprofit religious, educational or other charitable groups, such as churches, schools, hospitals, government agencies and veterans' organizations.
Some examples are the United Way and the Salvation Army, as well as the Boy Scouts and Girl Scouts. The literature of these organizations generally states that gifts are tax deductible to the extent provided by law.
For a complete list of qualified organizations, the CPAs recommended consulting Internal Revenue Service publication 78.
As a general rule, Galer said, business and civic clubs are not qualified organizations, because they come under another set of laws. Groups such as the Jaycees and Rotary do not pay taxes, he said, and you can't take a deduction for donations to them.
But some of these clubs, such as Rotary, for instance, have created separate foundations that function for international charitable purposes, Galer said. Money paid to Rotary is not tax-deductible, he said, but gifts to its foundation may be deductible.
You can donate assets other than cash to obtain a deduction, the Virginia CPAs said.
Gifts of property, such as furniture, other rummage or a used car, can qualify for the deduction. Your write-off is equal to the fair market value of the property, which is generally defined as the amount you would receive for the property today from a willing buyer.
Making gifts of appreciated property, such as stocks, real estate or antiques, can offer you additional tax benefits, the society said.
When you donate capital-gain property - an asset you have owned for at least a year that has grown in value - you can deduct the fair market value of the property. Nor would you pay taxes on the gains realized, because you purchased the donated property.
Suppose, for example, that you bought antiques for $2,000 some 10 years ago and they are worth $10,000 today. If you donate the antiques to a local museum where they will be displayed, you can claim a tax deduction of $10,000 and you will never pay any tax on the $8,000 gain.
But the CPAs warned that donors must keep accurate records of all charitable contributions. These records include the name of the organization and the date and amount (or fair market value) of the contributions.
Furthermore, for any cash gift of $250 or more, you generally must have a receipt from the organization getting the money. Canceled checks are not sufficient proof of your donation under recent tax law changes.
If you give property rather than cash, be sure the receipt adequately describes the donation.
If you donate property worth more than $500 in a year to any organization, you'll need to complete additional paperwork - IRS Form 8283, Noncash Charitable Contributions - and submit the form with your tax return.
For property donations exceeding $5,000, you must have a written appraisal from a qualified appraiser. A fully completed summary of the appraisal and an acknowledgment of the contribution from the receiving organization should be attached to your return. Keep in mind that the Internal Revenue Service may hit you with a penalty if you overvalue the donated property.
There are limits on your deductible charitable contributions that vary, depending on the recipient of the contribution, the CPAs said.
Deductions for charitable gifts to public charities, such as schools, churches and hospitals, cannot exceed 50 percent of your adjusted gross income. Gifts of appreciated property cannot total more than 30 percent of your adjusted gross income.
Gifts to veterans groups are limited to 30 percent of your adjusted gross income, with a further limit of 20 percent of adjusted gross income for certain appreciated property.
You may, however, carry over for five years deductions in excess of these amounts.
Additional rules may apply, so check with your certified public accountant or other tax adviser before making any large contributions.
by CNB