CLIENT ALERT

December 15, 2004

'Tis the Season For Charitable Deductions

While the greatest benefit of giving to charities during the holiday season may be the satisfaction of helping someone, your generosity can also earn you valuable tax deductions. Knowing how to deduct these charitable contributions can help to make the holiday season more joyous for all.

The Basics

• If you are making a contribution of cash or property it must be made to a qualified organization. This includes religious, charitable and educational groups.
• You must file Form 1040 and itemize your deductions on Schedule A in order to take your deduction.
• If you contribute cash to a public charity, your deduction is limited to 50 percent of your Adjusted Gross Income (AGI).
• A 30-percent limit applies to gifts of property that have appreciated in value and are held for more than one year. A five-year carry-over of the excess is allowed.
• If you make a contribution by check, you can deduct the amount as long as the check is dated and mailed by December 31, 2004.
• Charitable donations made with a credit card are deductible if the charges are made in 2004, even if you don't pay the bill until 2005.

Contributions with Benefits

If you receive any goods or services as a result of your charitable contribution you are only permitted to deduct the amount of your contribution that exceeds the value of the benefit received. For example, if you pay $100 to attend a fundraising dinner, only the portion of the ticket price above the value of the meal or entertainment amount is deductible. If your contribution exceeds $75, you must receive a statement from the charity estimating the value of the benefit you received.

Volunteering

While the giving of one's time may be the most valuable donation you make this season, the IRS does not allow a deduction for volunteering. You can however, deduct out-of-pocket incidental expenses in connection with the charity, such as stationary and postage. You are also permitted to deduct 14 cents per mile, plus parking fees and tolls, when you drive your own car in connection with your volunteer work.

Recordkeeping

Nothing is more important than keeping thorough records and receipts of your holiday donations. All deductible contributions must be substantiated according to IRS guidelines.

• Less $250: A canceled check is sufficient for substantiating contributions.
• Greater $250: You must obtain a written receipt, including the date, amount and description of the donation. The receipt must state if the any goods or services were received in return, and if so the value of these must be deducted from the donated value.
• Greater than $500: Your personal records must site how and when you acquired the donated property and your cost basis. You are required to attach Form 8283 to your tax return.
• Greater than $5,000: You must adhere to the previous requirements as well as include a qualified appraisal of the gift's value.

Vehicle Donations

If you are considering donating a vehicle to charity, it is important to review recent changes in tax legislation. Under the American Jobs Creation Act 2004, vehicle deductions have been restricted to an amount no greater than the gross proceeds received from the sale. This new law significantly limits the prior rules, yet it is applicable only to vehicles donated after December 31, 2004, which means that donating a vehicle before 2005 may result in a greater deduction.

Additional information regarding the American Jobs Creation Act can be accessed on our website, in the "Client Alerts" section.

Please be aware that for every situation there are always exceptions to the rules. If you are planning on making a charitable donation this year, please do not hesitate to contact our office and we would be happy to address any issues you may have.