5 Items to Donate for a Charitable Tax Deduction
It's that warm and fuzzy time of year when you may be thinking of donating to charity. After all, you're a good person. It's the right thing to do. And sure, there's also a little matter of getting a tax deduction -- assuming you've picked a charity the Internal Revenue Service recognizes. (If you have any doubt that a charity is IRS-approved, you can go to irs.gov/eo and look it up using the "EO Select Check" tool.)
If you've been holding onto stock for a while, you could donate it to a charitable cause. It isn't complicated to do, but you should first consult your financial adviser or an attorney, says Al Novak, vice chancellor of Institutional Advancement at the University of Pittsburgh. (Most universities have an office of institutional advancement, which, among other things, is in charge of accepting charitable donations.)
"Your broker will need to contact the charity to obtain pertinent account information," Novak says. "In cases where you hold the actual stock certificates, you will need to sign a stock power form for each certificate you contribute." If you want to donate a mutual fund before the year is up, it can take up to a month to transfer, since each mutual fund company has its own requirements for charitable contributions, Novak says.
What are the benefits for you? "You receive gift credit and an immediate income tax deduction for the fair market value of the securities on the date of the transfer, no matter what you originally paid for them," Novak says. "You pay no capital gains tax on the securities you donate."
Are there any downsides to donating appreciated securities to a charity? Not really, Novak says. "You're avoiding being taxed, and in some cases where the value of the stocks are significant in value, you're avoiding being taxed 20 percent. Additionally, by avoiding capital gains, donors may also avoid the unearned income Medicare contribution of 3.8 percent, a Medicare surtax."
There is one thing to be aware of, however, according to Julie McNeal, a finance professor at the Marlboro College Graduate School in Brattleboro, Vermont. "There is no prohibition against giving assets held less than a year, but the donor is only able to deduct the price paid for the stock, not its appreciated value," she says.
Cars can be a very generous gift to a charity, which will generally sell them for cash rather than keep them. Numerous nonprofits, from Goodwill to Make-a-Wish Foundation, are set up to make donating a car as easy as possible. For instance, charities will typically tow your vehicle, so you don't have to deal with the logistics. The deduction you receive from the IRS depends on how much the charity gets for selling your car.
In the old days, you could write off your car for the market value, but that changed in 2005, apparently because a lot of taxpayers were overvaluing their cars. So now your deduction depends on that final sale price. For example, if the market says your car is worth $5,000, but the charity can only get $3,300 on the auction block, your deduction is $3,300.
Donate as much of the green stuff as you want, but if you give less than $250 at one time, you'll need the canceled check or a bank record to back up what you're telling the IRS you've given. If you give more than $250 at one time to a charity, you'll still need a bank record. You'll also need an acknowledgment letter from the charity stating what you gave, including the amount of money and the date, and you'll have to fill out Form 8283 and attach it to your tax return.
"It pays to donate reasonably big-ticket items if you can," says George Cook, an executive professor at the Simon School of Business at the University of Rochester in New York. "For example, a complete bedroom set can get you up to a $1,000 write-off. Complete dining room sets may get you up to $90. Computers, copiers, televisions and refrigerators in working order might get you $250. Working washing machines can be up to $150."
And just as charities will do with cars, "many charitable organizations will come to your residence and pick up heavy-duty, bulky items, such as furniture. Just call and schedule a pickup, and they will haul it away," Cook says.
Do you have an extra floor lamp or some old but nice shoes you never wear? You can donate and deduct those, too. "Write-offs for clothes won't be as large as large appliances, with the exception of high-end fur coats, which may value around $400," Cook says. "Men's overcoats and suits are in the $60 range."
How do you know how much something is worth? Go with the fair market value of the product. To find the fair market value of your 8-year-old coffee maker that still works just fine, your best bet is to ask the charity. Some charities provide valuation guides online. For instance, the Salvation Army has one at satruck.org/donation-value-guide. It turns out your used coffee maker is worth $4 to $15.