Charitable Giving: 4 Smart Steps

As Republicans negotiate changes to the tax code, one area is set to remain the same: charitable giving. That said, because both the House and Senate proposals nearly double the Standard Deduction, fewer taxpayers will be itemizing, which means they will be giving for the sake of giving, not to reduce their tax bills.

Regardless of the tax implications, year-end is often the time that many make charitable gifts, so its time for a four-step refresher on giving.

Step 1: Confirm that the Charity is Legitimate. To help taxpayers conduct research, the IRS has established an online search tool, Exempt Organizations Select Check, which allows users to search for and select an exempt organization and check certain information about its federal tax status and filings. (Tax-exempt means the organization doesn’t have to pay taxes. Tax deductible means you can deduct your contribution on your federal income tax return.)

Step 2: Research Charity’s Financial Health. Once you have confirmed that the group is legitimate, you can also see what others say about the organization by going to the Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Watch and GuideStar.

You will also want to know that its finances are healthy and that it is efficient, ethical and effective. Charity Navigator provides 0 to 4-star rating system, which includes a review of each charity’s fiscal performance. The organization’s CEO, Michael Thatcher told me that their team of professional analysts has examined tens of thousands of nonprofit financial documents to develop an unbiased, objective, numbers-based rating system to assess over 8,000 of America’s best-known and some lesser known, but worthy, charities.

Step 3: Determine how you will donate to the charity. You should NEVER send cash donations or wire money to someone claiming to be a charity. And do no not provide any personal or financial information until you’ve thoroughly researched the charity.

Check/Credit Card: If you are planning to send a check, your payments must be postmarked by midnight December 31st — just writing “December 31st” on the check does not automatically qualify you for a deduction; and pledges aren’t deductible until paid. Donations made with a credit card are deductible as of the date the account is charged, so if you are a little late in the process, you probably should stick to credit cards.

Appreciated Securities: If you are making a gift of appreciated securities from a taxable investment account, which allows you to write off the current market value (not just what you paid) and escape taxes on the accumulated gains, you will need to get information about how to send the assets-be sure to confirm all receiving account numbers.

Qualified Charitable Distribution (QCD): Using a QCD allows you to sidestep the taxation on your Required Minimum Distribution (RMD) of your retirement account, but you need to be sure to follow IRS rules carefully. You can make a QCD of up to $100,000 directly from your IRA to a public charity (not to a private foundation, nor to a charitable supporting organization or a donor-advised fund) without having to include the distribution in your taxable income. If you use it, you swap having to claim the income on the RMD for deducting the charitable contribution.

Step 4: Keep Good Records. For any cash or property valued at $250 or more, you must have a receipt (bank record, payroll deduction or written communication) identifying the organization, the date and amount of the contribution and a description of the property. For text message donations, flag the telephone bill with the name of the receiving organization, the date of the contribution, and the amount given.