Itemizing BenevolencePam Black
It's getting harder to give your money away: Uncle Sam has become downright picky about how you report your largesse. Yet you still feel philanthropic, especially since higher tax rates mean bigger charitable deductions at tax time.
Under the old law, a canceled check was adequate proof of your donation. Now, you need a written receipt from the charity listing gifts of $250 or more. Most charities are gearing up to mail out such letters automatically, but you must make sure you receive and keep them. "Get them now rather than after New Year's, when everyone will be asking for them," says Mark Kersting, an accountant at Urbach Kahn & Werlin.
In the letter, charities must also note the value of goodies they give you in exchange for your donation. You can't write off the $75 concert tickets you got in return for your $250 donation to the local orchestra: You can only deduct $175. Small trinkets, such as key chains, are exempt. So are "intangible" religious benefits. "Giving to a church or synagogue in return for a seat or a pew won't reduce your charitable contribution," says Davida Isaacson, director of planned giving at WNET, New York City's public television station. But, she says, if you do receive such a religious benefit or if you aren't offered anything in exchange for your gift or refuse any items, that must be clearly stated in the letter.
The new law also encourages gifts of appreciated stock. In the past, you could deduct the present value of stock you donated, but you had to add back any appreciation over your original cost when calculating the onerous alternative minimum tax. Now, you can write off the stock's current value without worrying about the AMT. (Don't confuse this with a law starting in 1995 that limits your deduction to the stock's cost rather than its present value. That applies to private foundations--not public charities.)
Noncash donations of art or clothing must also be described in the charity's letter, but declaring their value is up to you. A rule of thumb for clothing, says Stuart Kessler at accounting firm Goldstein Golub & Kessler, is 15% of the original price. Remember to file a qualified appraisal with noncash gifts worth more than $5,000. All this may mean more paperwork now, but next Apr. 15, you'll be glad you did it.
THE NEW RULES ON CHARITABLE GIFTS
-- Make sure to get letters from charities for gifts of $250 or more. The letter must indicate the value of any goodies you get in return for your contribution--which should be subtracted from your deduction.
-- Gifts of appreciated stock are no longer subject to the alternative minimum tax.
-- Noncash gifts need to be acknowledged but not valued by the charity. Gifts of more than $5,000 must be accompanied by a qualified appraisal.