How to Give Wisely

Have the holidays made you feel more generous? Non-profit organizations report receiving 41 percent of their donations between Thanksgiving and New Year’s each year, according to Charity Navigator, and their overall charitable contributions are significant.

Americans donated $335 billion to not-for-profit organizations last year, and giving has gone up in each of the last four years.

If the holiday spirit motivates you to write a check for your favorite cause, you’ll want to make the most of your contribution. According to the California Society of CPAs (CalCPA.org), your top goals should be to know where your money is going and understand how the charitable giving tax benefits work.

Get the Details

Only 35 percent of donors said they had conducted any research on an organization before making a donation, according to a study by Hope Consulting.

While it may be hard to resist a phone call with an appeal for a great cause or a pitch for your alma mater at a reunion, it’s best to find out about the specific financial goals of the not-for-profit you’re supporting. Learn how it achieves its mission and have some idea of how your money will be used.

In addition to reading the brochure and financial information put together by your favorite cause, also check out reviews for the organization put out by groups such as GiveWell, which identifies and analyzes successful not-for-profits. Use what you learn to pick successful groups that make the most effective use of donations.

Know the Tax Rules …

If you plan to deduct your donation on your tax return, be sure that the recipient is a qualified tax-exempt organization. If it isn’t, your deduction will not be allowed.

In addition, you’ll also need some evidence that you’ve made the donation, such as a receipt or an acknowledgement from the charity or proof of expenses you incurred to do volunteer work. If you donate property, you may need a qualified appraisal for certain high-value items.

Remember that the value of anything you receive from the organization will be subtracted from your donation. For example, you pay $40 to see a special showing of a movie for the benefit of a qualified organization. Printed on the ticket is “Contribution–$40.” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price).

When giving stock or real estate, it’s wise to check with your CPA beforehand on the tax consequences of giving the asset to the charity versus selling it first and donating the proceeds.

… And Watch for Tax Law Changes

Tax regulations can be revised from year to year, so don’t count on a past strategy if you’re not sure it’s still within the rules. For example, in 2014, itemized deductions—including those for charitable donations—taken by individuals with adjusted gross income (AGI) over $254,200 and married couples filing jointly with AGI over $305,050 begin to phase out the higher their income rises.

It’s certainly still worthwhile to support your causes, but check with your CPA so that you understand how your income affects your deductions. In addition, those over age 70½ can no longer exclude from their taxable income any distributions from individual retirement accounts that they donate to qualified charities.

If you had planned on pulling some money from an IRA for a charitable gift, your CPA can help explain your alternatives.

Turn to Your Local CPA

Giving to charity allows you to make positive change and to promote the causes you believe in. Your local CPA can help you understand your many options for doing good and taking advantage of any available tax benefits. Be sure to contact him or her with all your financial questions and concerns.

Copyright 2014 American Institute of Certified Public Accountants.

The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program.