Finance

Charitable donations yield big tax benefits to the individuals who make them. Nevertheless, its important that taxpayers keep some simple steps in mind in order to ensure they receive the appropriate benefits they are due. Donating cash is a fairly simple matter to declare on a tax form, but making charitable donations of other items, especially vehicles or stocks and bonds, involves slightly more paperwork and figures that taxpayers should familiarize themselves with, preferably using the help of a tax accountant.

Ensuring Charitable Donations Lower Your Tax Bills
The tax benefit for making charitable donations applies strictly to taxpayers who itemize their deductions, which is only about a third of all filers. Individuals who opt for a standard financial deduction receive no additional tax benefit for their contributions. Those who itemize deductions for their charitable donations reduce their taxable income by the total contributed to qualifying tax-exempt organizations, although this can be subject to limits. The tax savings generally equals the deduction times the marginal tax rate, i.e. the top rate for the individuals income level.

Donating stock or other property is typically calculated as the fair market value of the property. For stocks and bonds, this usually means the average price between the highest and lowest selling price on the valuation date. Cars used as charitable donations are considerably thornier, since they are subject to such factors as the year, the model, and the mileage on the car, not to mention local market conditions and the vehicles overall condition.

The IRS also recommends that taxpayers keep accurate records with which they can substantiate the value of their gifts. For instance, with every gift of $250 or more, a taxpayer should be able to furnish a written acknowledgement from the charity. Additionally, an individual donating property or items valued at more than $5000 is required to obtain a qualified written appraisal.

It is true that clothing donations can be a godsend to those in need. Because clothing items are so easy to come by, stuff into bags, and cart down to the local church or simply leave on your driveway for pickup, apparel items tend to be among the most popular forms of donations. The idea, after all, of someone not even able to afford such basic protection from the elements seems like nothing short of a moral outrage.

Still, some charities find that, especially in the wake of a disaster, this can often become a problem in itself. In the wake of a tornado, a hurricane, or a flood, well-intentioned people from all over the country frequently make used clothing donations by the truckload. Ironically, this is what some government officials think of as the second disaster.

The Problem With Clothing Donations
The trouble starts once the clothing donations actually reach the charity site. There they have to be stored somewhere, frequently a basement that cant always accommodate such a tremendous influx. Then volunteers have to come in and assist in the sorting and sizing of the clothing, which can prove a daunting task when there are so many different kinds and qualities of clothing to organize.

Some charity organizations complain that as much as a third of the clothing they receive is unusable due to holes, stains, or missing sleeves; volunteers are routinely told to dispose of clothing they themselves would be ashamed to wear. The bulk amounts of clothing donations that swamp workers in the wake of a natural disaster or a fund-raising drive also suck up valuable storage space that is needed for more essential items like food, water, and medicine. Some volunteers claim that clothing donations are like feeding the homeless on Thanksgiving: organizations get uncontrollably swarmed one day, and for the rest of the year need to scramble using the woefully limited resources at their disposal.

Charity car donations are a terrific way to make a substantial contribution to those in need. Such donations are tax deductible, with the amount of the write-off based on the vehicles make, model, year, mileage, and condition. Vehicles of all stripes are usually accepted by most charities, including trucks, vans, fleet vehicles, trailers, boats, motorcycles, and RVs, although its probably prudent to call ahead beforehand and make sure the charity youve chosen deals in vehicles at all.

The Ins and Outs of Charity Car Donations
Making charity car donations usually requires that the donor be able to show proof of title to the vehicle in question. Even so, some charities will still negotiate with you even if you lack such documentation. Cars that dont run and havent in years are also often accepted, except those that are too old and/or damaged to offset the cost of towing.

The Internal Revenue Services homepage has an entire section devoted to calculating the value of your donated property. Charity car donations that are worth more than $5000 are customarily subject to official appraisals, although this is usually considered a formality. The IRS does require, however, that the charity to which youre donating the car be a registered 501(c)3 organization.

Its important to keep your receipt from the donation for your tax records as proof of your tax deductible donation. Additional paperwork may be required depending on the value of the vehicle. If the vehicle being donated is worth more than $500, you need to fill out IRS Form 8283, for example. If its value exceeds $5000, you need to also submit an independent appraisal of the vehicle (as cited above) to the IRS, although most charities will be happy to provide this service free of charge.

Although the most frequently deducted donations are monetary contributions, billable goods and services can also be used as charitable tax deductions, especially if you keep decent records and make an issue of staying abreast of current tax laws. An accountant is useful in answering most of the questions that arise, but doing some basic research on your own will give you a good idea of what to expect before you even file. The IRS homepage itself is a valuable source of information and data and offers answers to many of the most frequently asked questions about charitable tax deductions.

Tips on Making Effective Charitable Tax Deductions
A good first step is determining whether the organization you intend to donate your services or money to is eligible to receive tax deductible contributions in the first place. Most charity organizations are well established and can offer proof of their eligibility in the form of documentation. If your organization is unable to give you the information you need, you can always search for the company or institutions name on the IRS website. (Its worth noting that being tax exempt is not synonymous with tax deductible, and companies that enjoy the former status dont by definition confer the privileges of the latter.

If your contribution is in the form of services, keep accurate records of every billable hour you work for the organization and provide receipts upon request, keeping legible copies naturally for your personal records. If youre not sure what you should be charging for your time, ask around at select companies or among other individuals who perform similar work to get an idea of what amount is fair to deduct. Depending on the organization, you can deduct anywhere from 30 to 50 percent of your donation.

Not only do volunteered goods and services provide great charitable tax deductions, but they also reflect well on your personal or companys record. Charity organizations often publicly acknowledge their benefactors. People prefer patronizing companies and professionals who are engaged in the improvement of the community and will show their support for you by using your product or service.

The term closeout products refers to a companys merchandise that is regarded as excess inventory from an earlier fiscal quarter. Closeout products usually become that way as a result of changes in color or design or fabric or missed deliveries but other factors may sometimes be involved. In the end, many large companies are commonly stuck with billions of dollars in closeout products every year and have to sell it all off at a whopping discount.

Obviously, closeout products remain a regular source of tension for most companies. Products need to be removed from shelves to make way for the influx of newer models. Sometimes a shift in financial circumstances or strategy results in canceled orders or manufacturers need to downsize or move their facilities due to economic pressures. Whatever their origin, closeout products need to be unloaded quickly, regardless of cost.

What Happens to Closeout Products?
More often than not, companies simply get rid of their closeout products by auctioning or selling them off to wholesalers and other constituents of the off price industry. Discount retailers, flea market swappers, auctioneers, exporters, and myriad other companies prosper exclusively by reselling these items, especially since theyre getting quality merchandise at such a steal (sometimes as much as 80 percent off the first quality retail rate). These groups presumably pass along such savings to consumers, which in a fairly loose sense may be considered an act of charity.

Donating closeout items directly to licensed charity organizations is of course another possible use of such items, although sadly it is the road less traveled. Doing so is often less hassle and inconvenience to the company, which would then go on to enjoy the public relations benefits that come with such transactions. Yet it goes against the grain of many businessmen to think in such terms, and corporations tend to be resistant to change, even when a more refined methodology would make immeasurably more sense from a business perspective alone.