Layla Doman donates to a range of charities. This helped the Washington, D.C., resident lower her tax liabilities, but that’s not the primary reason she donates. “It’s a benefit for a cause. You have to start with the heart of a giver,” says Doman, 40, a systems administrator. Doman’s giving includes supporting Susan G. Komen, which engages in breast cancer research, as well as bimonthly payroll deductions to five nonprofits, including the United Negro College Fund. Her cash and non-cash donations in 2010 totaled more than $25,000—nearly 20% of her annual income. Doman’s contributions raised her itemized deductions to more than $40,000, reducing her tax liability from $44,000 to $36,000. “Depending on your tax bracket, if you’re making contributions at a certain level, it’s like getting money back,” says Sandra Miniutti, vice president of marketing and CFO for Glen Rock, New Jersey-based Charity Navigator, which rates charities.
Shrinking the amount owed at tax time can be a smoother process if you take the right steps. Note the following DOs and DON’Ts:
1. Do know what is (and isn’t) a qualified charitable organization.
The organization must be recognized by the Internal Revenue Service as a 501(c)(3) tax-exempt nonprofit organization. Verify status by checking www.charitynavigator. org and www.guidestar.org. IRS publication 78, which is a database of all 501(c)(3) groups, can be found at www.irs.gov.
2. Don’t toss receipts.
If you donate a cash gift greater than $250, the charity must acknowledge the gift in writing, says William Perez, who provides advice for About.com’s guide to tax planning. If less, you’ll need a receipt, canceled check, or credit card statement. “If you do payroll deduction, you need the pay stub or W-2 and they’ll provide acknowledgement saying this deduction was a charitable contribution,” says tax attorney Kelly Phillips Erb of the Philadelphia-based Erb Law Firm. For non-cash gifts, request a receipt with the name and location of the nonprofit, date of the donation, and description of the item.
3. Do give appreciated assets.
Appreciated assets include stocks and real estate. By donating an appreciated asset, you can get the tax deduction based on the current value, not the lower value of the property when it was obtained.
4. Don’t expect a tax deduction for volunteer work.
However, your out-of-pocket expenses related to the volunteer work, can be deducted,” says Phillips Erb.