Is it just me, or can you feel the magic in the air this time of year? Even though the days are colder and the nights are longer, the holidays seem to bring out the best of humanity; and, having worked with many not-for-profit organizations over the course of my career, I have the pleasure of seeing some of the best of humanity first hand.
Listen now: The Warm Glowing of Giving
People choose to make donations to organizations and initiatives for many reasons. We learned in episode 11 of our podcast: “The Warm Glow of Giving,” that charitable donations are primarily guided by the heart and that 87 percent of all donations are made by individuals. That being the case, I still believe individuals – as well as businesses – should embrace strategy (the head) when it comes to writing checks to a worthy cause. Here are some do’s and don’ts to keep in mind when writing your check to charity.
- Do your research. Make sure you learn all you can about the organization you are donating to. You want to make sure you are donating to a worthy cause and not a fake charity.
- Know where your money is going. Find out how the organization will use your donation. It is OK to ask prior to your donation.
- Understand how this will affect your taxes. Most people know that making a donation can lead to a tax deduction, but do you know how much you can claim? If not, this is something your Rea advisor can help you understand.
- Get documentation. Any donation of $250 or more requires documentation if you are going to use it as a tax deduction. A cancelled check, receipt, etc. all work as documentation to include with your tax return.
- Give away appreciated assets, such as stocks. When doing this you get a deduction for the full value in most cases and you escape the capital gains on the appreciation.
- Expect a gift in return for your donation. That’s not the true meaning of a donation. Also, to be deductible, a gift cannot be received when making the donation, including a meal. If the donation was made at a dinner event, the cost of the meal must be subtracted from the donation amount.
- Pay with cash. For tracking and to prevent fraudulent activity, paying by check or credit card is usually the best option.
- Give randomly. Do your homework when donating, you won’t regret it. Make sure your money is going to a good cause and being used properly.
- Give more than you can afford. We all want to help, but donating more money than you can afford just creates more problems for you. Don’t put yourself in a situation where you are giving away more money than you can afford.
- Give away assets that have declined in value. Doing this will waster the capital loss opportunity for you.
Around 358 billion dollars are donated to not-for-profit organizations every year and these organizations turn around and do amazing things with your gift. From feeding the hungry, providing support to veterans and ensuring that others get the health, monetary or education assistance they need, nonprofits are an critical component of our society and you can be sure that the money you donate to any one of these types of organizations is appreciated. But you should still make sure you are using your head when making a donation to ensure that your money is being used in the best way possible. Want to learn more about how to choose the right not-for-profit organization for your tax-deductible donation? Listen to episode 11 of our podcast, Unsuitable on Rea Radio. You can also email Rea & Associates to get answers to your specific questions..
By Lesley Mast, CPA (Wooster office)