Charitable Giving: The Basics

Donating time or money to your favorite charity can be rewarding. But come tax time, don't overlook the opportunity to reap tax benefits as well.

Your donation may be deductible if the type of giving and the recipient meet tax law criteria. Keep in mind you can't deduct your charitable contributions if you don't itemize deductions. Plus, not every non-profit organization is a tax-qualified charitable organization. If in doubt, ask the group whether your contribution is "tax-deductible."

If you do itemize and give to a qualified charity, there are tax deductions for your donation of time, goods and/or money. Here's how it works:

• Cash Contributions: When you give money to a charity, it's considered a cash contribution regardless of your payment method.
  
  This includes any donation you make in the form of cash, check, credit card or payroll deduction. Out-of-pocket or car expenses you incur while donating your services are also in this category.
  
  If you contribute to a charity and receive something in return, such as dinner or a tote bag, then your deduction is the amount you paid minus the value of the goods or services received.
• Non-Cash Donations: Keep in mind that if you donate a car, boat or plane to a charity, the rules have changed for 2005. As of Jan. 1, 2005, you can no longer deduct the fair-market value of the vehicle if the charity sells it. You can only deduct the amount received from the sale of the car.
  
  Similarly, you can't deduct non-cash donations totaling more than $500 unless the charity provides documentation indicating whether or not the property will be sold or used by the organization.
• Volunteer Time: The value of the time or services you spend on charitable work is not deductible. For example, if you're a graphic designer who spent hours on the church newsletter, you can't deduct your professional hourly fee.
  
  But you can deduct 14 cents a mile for the use of your car for charitable purposes, or you can deduct your actual expenses, such as gasoline. If you donated any supplies or food during that volunteer work, you can deduct the cost of those as well.
  
  If you are deducting charitable mileage related to Hurricane Katrina relief, you qualify for an increased rate. From Aug. 29, 2005 to Aug. 31, 2005, you can deduct 29 cents per mile for charitable services related to Katrina relief. That rate goes up to 34 cents per mile from Sept. 1, 2005 to Dec. 31, 2005.
• Goods: You can deduct the purchase price of new items. But the amount of deduction for used goods, such as clothing, household goods, furniture or other non-cash items, isn't as simple. It's based on the item's "fair market value."
  
  While you want to be sure not to overestimate what something might be worth (watch out for sentimental pricing), you also don't want to underestimate it. Many taxpayers underestimate the value of their contribution because they don't know how to assign accurate fair market values to their donation.
  
  To better determine value of your donated items, you might want to visit the thrift store where your donation will be sold to check out prices.

For more information on how to keep track of your charitable contributions, read up on Charitable Giving: Keeping Track. Plus, keep track of your donations all year long with our printable Charitable Giving Recordkeeper.

For more information on what's deductible, read Deductible or Not? Additional information on charitable contributions can be found in IRS Publications 78, 526, and 561.

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