Charitable giving: Things to keep in mind this year

As you plan your holiday charitable giving, take note of these developments that could affect the ease of donating, and the tax-deductibility of your gifts.

Give (cautiously) via credit card
More charities are arranging to let you donate by credit card every month. The system is convenient, but has some potential pitfalls.

What to do: Check out our advice, “Easier ways to give.”

Save your receipts
The IRS now requires receipts for all deductible donations. Starting this year, all charitable deductions, no matter how small, must be substantiated either by a canceled check; bank record containing the charity name, donation amount, and date; or detailed receipt from the charity. Otherwise the contribution is not deductible.

What to do: Start collecting your charitable acknowledgements, receipts, and cancelled checks in one place now. If you make cash donations, you’ll need either a bank statement or a written communication from the charity noting the charity name, your donation amount, and the date. For more, check IRS Publication 526, Charitable Contributions, on the IRS Web site.

Make your donation count
Make sure your dollars will be efficiently and wisely used by the not-for-profit of your choice. Not every charity is efficient in its use of donors’ money, and not all charities are even recognized by the IRS as eligible to receive tax-deductible donations.

What to do: For advice on how to find the best charity for your money, check out this article from Consumer Reports ShopSmart magazine.

Donate directly from an IRA
This is the second and final year that individuals aged 70½ can make a charitable deduction directly from an IRA—up to $100,000 a year—without having to recognize the income and pay taxes on it. If you do so, however, you can't take a tax deduction for the donation, but it should count toward fulfilling your minimum distribution requirement without adding to your taxable income. This can be a good strategy to avoid the IRS’s rule that limits higher-income taxpayers from fully deducting donations. It’s also good for folks on the other end of the income spectrum who don’t itemize and therefore can’t normally get a tax deduction from a charitable donation.

What to do: Contact your IRA custodian with the names of charities to which you’d like to make donations. Since this could take a little time, start the process now so that the gifts are made before year end, when this tax break is set to expire. The contributions must go directly to the charity. Don’t cash any checks that are sent to you by mistake or you’ll pay the taxes. IRS Publication 526, Charitable Contributions, on the IRS Web site. —Tobie Stanger