Tax planning can provide personal satisfaction when it includes charitable giving. Each year your charitable gifts are listed on Schedule A of your tax return and their total along with eligible medical expenses, taxes paid, interest paid, and miscellaneous deductions make up your itemized deductions. When this total exceeds your standard deduction, you are entitled to deduct the larger amount from your taxable income. Thus, your charitable gifts can have a positive impact on the taxes you owe.
There are a number of ways to impact charities and reduce your taxes. Along with spring cleaning, old clothes, toys, and household goods can be donated. When donations of goods exceed $500, additional information is required on your tax return, but this should not stop you from making the gift or claiming the proper deduction. Many individuals value these items as though they were being sold at a garage sale. Pricing these items in that manner in many cases is undervaluing them, and thus shorting your tax deduction. Obviously, if a man’s dress shirt was purchased for $30, then the value at the time of the gift cannot be $25; but, it can be $10 to $18 depending upon the condition. I encourage my tax clients to tour one of our area resale shops, and then value their used clothing in a similar fashion as the resale shop. Working household items can also have a higher value than a garage sale value, unless it is one of the items that didn’t sell at your garage sale.
Another way to have a charitable deduction is to include the items you purchase and gift to your church or school and the miles you drive during your volunteer work. Each mile you drive for charity work can be taken as a 14 cent deduction. So, tracking the number of miles you drive can add a hundred dollars or more to your charitable amount on your return. And in our community, there are so many ways to volunteer, I am certain most of you have charitable miles to count.
Gifting appreciated items can also provide a significant benefit. As an example, if you wanted to give $2,000 to your church, you could write a check and you would have a two thousand dollar deduction. However, if you also owned a stock that has appreciated in value, you could transfer the number of shares that would equal the $2,000 gift. You still have the same tax deduction, but now you no longer owe the tax on the appreciation of the shares. Thus, if you had paid $1,000 for those shares and they are now worth $2,000, you saved at least $150 in taxes by not having to report the gain, plus the benefit of the deduction. You should visit with your tax advisor prior to making gifts of appreciated items, but they can be very beneficial.
Lastly, you can provide gifts of cash to the charity or non-profit. While many may request cash, I prefer to always write a check so I have the record of the gift. If during a year I made numerous small cash gifts but forgot a total of $100 of them, not only did I give away $100, but now because I did not include that amount on my tax return I ended up paying $15 to $30 more in taxes. It is best in my opinion to always write a check for your gift.
It seems this is the season to participate in a number of events in our area. Relay for Life is around the corner, and I have noticed a number of organized walks for various charities. One that I am involved with is the 2008 Big BBQ Bash, which will be held this Saturday, May 10th at Alcoa’s Springbrook Corporate Park. This event is raising money for children of Blount County and each winning BBQ team will share their prize with their charity. While attending an event such as this may not provide a tax deduction, the funds raised will go to support many needs in our community. If you enjoy BBQ, I hope you will take time from your day to attend our BBQ Bash.
HOW TO REACH THE WRITER
Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.
Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.
Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.