Charity Begins on Schedule A

For many of us, one of the most lucrative tax deductions we claim each year comes from itemizing our charitable contributions on Schedule A. This month, while we are still in the peak of income tax season and can do something about it, I want to share some insight into ways that we can make this benefit work for us while also feeling like we are doing some good in the world.

Like most tax benefits, charitable donations of cash or property to our churches or other charitable entities must take place during the calendar year. This is very much in keeping with the spirit of our January newsletter, where I reminded you all that the difference between tax planning and tax preparation is December 31. In almost all cases, if you haven’t acted by the end of the calendar year, it is too late to plan for any tax benefits, and all that is left is to prepare your return and let the pieces land where they fall.

This is why most non-profits will provide a receipt acknowledging your donation, even though the law only requires them to do so if the total contribution exceeds $250. They know that your ability to deduct your charitable contribution depends on written proof; they also know that if you can't deduct your donation, the donations dry up. This is also why donations of used clothing or canned food are often accompanied by a blank receipt. It is up to you to estimate the fair market value of your gift, but it is equally important to indicate the date it was given.

This year, for the first time I can remember, that strict calendar-year rule has been altered. As a result of the devastating earthquake in Haiti, which occurred on January 12 of this year, a special law was passed which allows donations made in calendar 2010 to be deducted on your 2009 return.

Here are the outlines of the applicable rules:

  • Donations must be made specifically for victims of the January 12 earthquake in Haiti.
  • To be eligible for a deduction on your 2009 return, the donations must be made after January 12 and before March 1 (meaning from January 13 to February 28). Donations made afterward are, of course, still deductible on your 2010 return.
  • In order to be deductible, contributions must be made to qualified charities, and can not be directed to specific individuals or families.
  • The new law applies only to cash donations.
  • Contributions to foreign organization are generally not deductible, so make sure your gift goes to domestic charities. Information about specific organizations helping with earthquake relief efforts in Haiti can be found at www.usaid.org.

Of course, all donations must still meet other IRS rules relating to deductibility, e.g. there must be a written record of the donation; donations can only be claimed on Schedule A (so taxpayers who do not itemize receive no tax benefit), etc.

Many of you know, as I do, the warm satisfaction that comes from sharing our means with others in need. But how nice to know there is also a financial benefit we can receive for our acts of charity, especially now  in Haiti, where the need is so great.

Give gratefully, and give generously.

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