Don't Try to Deduct Gifts to the Frat Party Fund

And, alas, no matter how valuable your time may be, you're not allowed to deduct the cost of your time or services. So if you're an attorney billing $250 an hour and choose to do some work for Legal Aid, you're not able to deduct $250 for every hour you work for them.

Volunteers can, however, deduct unreimbursed expenses incurred during such work, including commuting expenses, telephone calls, uniform purchase, and meals and lodging if the organization requires you to travel. If you used your car in providing volunteer services, you can deduct either the actual operating costs of your car or a flat mileage rate of 14 cents a mile.

Cash Donations

Donating cash (including checks) is the most straightforward of the charitable deductions. If you write a check for $100, you can deduct $100 on your Schedule A.

But if your donation includes some benefit (such as a dinner or a thank-you gift), the value of the benefit is subtracted from your allowed deduction. So if you buy a $100 ticket to a fundraising banquet and the cost of the dinner is valued at $40, you're only allowed to deduct $60.

Most charities will tell you upfront how much the benefit is worth, and many will let you opt out of receiving a gift, making your entire contribution deductible.

Donating appreciated securities gives you the most bang for your buck, though. You're able to deduct the full market value of the securities, and won't have to pay tax on the gain. To do so, you must have held the securities for more than a year. Those held short-term won't convey this same perk.

There are some limitations on how much you can donate. For instance, you can't deduct donations past 50% of your adjusted gross income; that figure falls to 30% when donating appreciated securities. But when your donations in one year exceed the percentage limits, you can carry over the excess for up to five years.

Donating Tangible Items

When most of us donate tangible items, it's stuff that has gone down in value. (I know I've never found anything in my closet that has actually appreciated.) So whether you've done some spring cleaning and want to donate the result, or if there's a particular item (such as a car) you're looking to unload, there is a specific set of rules you need to know.

First of all, you can only deduct the fair market value of the item you're donating. So even if you paid $400 for that suit you never even cut the tags from, you can't take a $400 deduction. By sheer dint of the fact that suit is no longer in Bloomingdale's, its fair market value is no longer $400, no matter what the tags say.

To determine an item's fair market value, shop around for similar items. Check out thrift shops, online auctions, newspaper ads, secondhand furniture shops and flea markets. Frankly, most experts say that taxpayers tend to undervalue their items, so it's in your own best interest to do a little homework.