By Xavier Brenner It's the season of giving. And scheduling your charitable donations before the year-end may be a smart way to reduce your tax bill come next April. Yet to really leverage the most tax savings out of your giving, you need to know the IRS rules regarding reporting requirements and donation limits. Here are some general guidelines, but double check with a tax expert before you take the plunge.
Before you claim your deduction on Form 1040, Schedule A (PDF) next spring, make sure that your cash or property gift meets the necessary criteria for tax deductibility. First, the cash or property in questions actually has had to change hands. A pledge or promise to donate is not deductible until you official transfer the assets. Next, make sure your charity is a qualified tax-exempt organization. Ask the organization if it has received 501(c)(3) tax-exempt status. Churches and other religious organizations generally aren't required to have this status with the IRS, but if you are not sure check with a tax attorney or CPA.
You are going to need to keep records such as canceled checks, acknowledgment letters from the charity, and appraisals for donated property. Ask the charity for a receipt that includes its name of the charity, date of the contribution, and a reasonably-detailed description of the donated property.
You should familiarize yourself with the deduction limits. In some cases, you might want to give a little more to fully realize the tax savings. In others, the benefits of a big gift can be spread out over several years. Generally speaking, you can deduct cash contributions in full up to 50% of your adjusted gross income, while property contributions are capped at roughly 30% of your adjusted gross income.
Stocks and bonds
Some investors also opt to donate stocks and bonds to a worthy cause.