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Simple
Steps Can Help Taxpayers with Charitable Donations
IR-2003-134, Dec. 1, 2003
WASHINGTON —
As the end of the year approaches, the Internal Revenue Service
reminds taxpayers that they may be able to use their gifts to tax-exempt
charitable and religious groups to reduce their taxes.
Taxpayers also
need to keep in mind some simple steps to make sure they get appropriate
benefit for their generous donations. In particular, there are some
important guidelines for donating used cars and other property,
such as stocks and bonds.
The tax benefit
for charitable contributions is only available for taxpayers who
itemize deductions — about one-third of all filers. Those who
take a standard deduction receive no additional tax benefit for
their contributions.
In 2000, the
last year for which complete data is available, about 37.5 million
taxpayers made deductible charitable contributions totaling nearly
$140.7 billion. Of these gifts, nearly $98.2 billion were cash donations.
Only contributions
actually made during the tax year are deductible. For example, if
you pledged $500 in September but paid the charity only $200 by
Dec. 31, your 2003 deduction would be $200. You include credit card
charges and payments by check in the year they are given to the
charity, even though you may not pay the credit card bill or have
your bank account debited until the next year.
Those itemizing
deductions reduce their taxable income by the total contributed
to qualified tax-exempt organizations, with some limits. The tax
saving usually equals the deduction times the marginal tax rate
– the top rate for the person’s income level.
For example,
an individual with a taxable income of $50,000 donates $2,000 to
his or her church. The tax savings from this generosity will be
$500 — $2,000 times the taxpayer’s marginal tax rate of
25 percent.
Donations of
stock or other property are usually valued at the fair market value
of the property. For stocks and bonds with an active market, the
fair market value is the average price between highest and lowest
selling price on the valuation date. Figuring the value of other
personal property can be more complicated.
For example,
determining the value of a donated used car requires weighing several
factors. Some car donation program operators have mistakenly suggested
that donors can take as a deduction the full value listed in an
established used car pricing guide. For additional information,
see IRS News release 2001-112, IRS and State Charity Officials Urge
Care When Making a Car Donation.
The tax law,
however, allows a deduction for only the fair market value of the
car. Fair market value takes into account not only the year, the
model and the mileage of the car, but also the local market and
the vehicle’s condition. As a result, the fair market value
of the taxpayer’s car may be substantially different than the
average price listed in an established used car guide.
The IRS also
reminds taxpayers to keep appropriate records to substantiate the
value of their gifts. For example, for any single gift of $250 or
more, a taxpayer must have a written acknowledgement from the charity
by the earlier of the date the person files the tax return or the
filing deadline, including extensions. A person donating property
valued at more than $5,000 must obtain a qualified written appraisal.
Taxpayers can
find help regarding the donations they make in Publication 526,
Charitable Contributions. A second reference, Publication 561, Determining
the Value of Donated Property, answers many of the questions that
donors have when they make noncash contributions. Both publications
are available at the IRS Web site, www.irs.gov, or by calling 1-800-TAX-FORM
(1-800-829-3676).
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