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It’s All For Charity

December 7, 2008

It’s that time again for year end tax planning.  This week I’m giving you a special “invitation” to get the benefits of a commonly misunderstood deduction – the  charitable contribution.

Who?

Charitable contributions can only be made to 501(c)(3) organizations; not a 501(3)(c), or a 501(c), or a 501 something else. Other names you may hear for 501(c)(3) organizations are charity, public charity or charitable organization. You see these organizations in every community across the U.S. What they have in common is that they are organized (i.e., created) and operated for charitable purposes.

The term, “non-profit or tax-exempt,” does not mean that the organization is a 501(c)(3) organization. Non-profit means the organization is set-up under a specific state law or statute to do and focus on certain areas (such as, social, fraternal, charitable, or business association-type activities). Tax-exempt means the organization does not pay income taxes to the IRS or a state taxing authority – like your local chamber of commerce.

But a 501(c)(3) organization is a nonprofit, tax-exempt organization that also allows you to deduct your donations (sometimes called dues) as charitable contributions. If the organization doesn’t qualify under 501(c)(3), you can’t take charitable contribution deductions for your payments or dues.

Ever wonder if your neighborhood charity is really a true 501(c)(3), or even a charity, for that matter? Does “Help Lil’ Ray Go to School” sound a little suspect to you? Never fear, this time it’s the IRS to the rescue. The IRS maintains a searchable list of all 501(c)(3)s on their website (http://www.irs.gov, see IRS Publication 78, Cumulative List of Organizations). Also, check out Guidestar’s website for tax information on 501(c)(3)s; including, revenues and expenses, down to how much the executive director makes (http://www.guidestar.org).

What?

Charitable donations come in all shapes and sizes and can be a great way to get in last minute tax deductions? Whether it’s cold hard cash or clothes to the needy they all can count as charitable contributions. Even your mileage to and from volunteer events can count. For more on charitable contributions for donating non-cash items; such as, clothes, appliances, household goods, toys, or furniture; see my November 9, 2006 column, “Say Goodbye”.

When?

Last minute donations still may count, but how you make the donation can make all the difference here.

— Cash Donations – These are considered made when you give them. This is probably the best way to donate money to your church on December 31st if you want it to count for 2008.

— Checks – These count the date that the check is actually mailed. So, you may want to send the check using an express mail service or some other way that you can prove the date that you mailed it.

— Credit card – Donations made by credit card are made on date you make the charge.

— Pay-by-Phone – Pay-by-phone donations are made on the date that your financial institution pays the amount. So you probably don’t want to make donations using the pay-by-phone method on December 31st.

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