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.