Thanksgiving: A doubly good time for charitable deeds
November 17, 2010
The Thanksgiving season is a doubly good time to consider charitable donations. First of course, as you reflect on the blessings life has given you, you might be moved to make some gifts to those who have been less fortunate. Second, the timing couldn't be better, because considering charitable donations gives you plenty of time to act by the end of the year, so you can deduct those donations on this year's tax return.
Don't for a moment think that taking donations as a tax deduction in any way diminishes the honorable intent behind those donations. After all, the deduction only saves you a minority of the donation -- most of it is still coming at your expense. Also, think of tax deductions as leveraging your ability to donate money -- the more you can deduct, the more you can afford to give.
Tax rules on deductions
The eligibility of charitable donations for tax deductions depends on a number of factors specific to your individual tax situation, so you should do your research or consult with a qualified tax advisor before assuming a donation will be deductible. To give you some general background, though, here are some highlights from IRS rules governing charitable donations:
- Donations must be made during the tax year for which you are taking the deduction.
- To deduct a charitable donation, you must itemize deductions on your tax return.
- High-income filers might be limited in the value of their deductions.
- The organization must be recognized by the IRS as eligible for tax-deductible donations.
- If you receive something of value in exchange for your donation, the value of what you receive must be subtracted from your deduction.
- You can donate property, but if the value of that property is greater than $500, you must properly document its value on your tax return.
- You must have written acknowledgement from the recipient of cash donations that are $250 or greater.
Choosing your charities
Naturally, when choosing a charity, you will want to start by selecting those causes you deem to be worthy of help. Next, if you plan to take a tax deduction, you will want to call or email to confirm each organization's eligibility for deductible donations.
If you want to do some more research, you can check out organizations like charitynavigator.org, which evaluate charities based on various aspects of their performance.
Collect donation money in a money market account
Another reason why it may make sense to make charitable donations towards the end of the year is that this allows you to accumulate money for donation throughout the year, rather than making a long series of small donations.
Money market accounts are generally good vehicles for collecting money earmarked for donations. Money market rates are generally higher than the rates on savings accounts, and unlike CDs they allow you to collect money incrementally. Just be aware that money market accounts are likely to have a limit on withdrawals in any one month, so if you are giving to several charities, you'll want to make one lump sum transfer to your checking account and make donations from there, rather than making several transfers directly from the money market account to the charities.
When you make charitable donations, you'll be spreading the spirit of Thanksgiving, by giving others more to be thankful for.