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7 Things to Remind Clients of Regarding Charitable Contributions

  

Every year when tax season rolls around, tax professionals find themselves explaining the core features of charitable donations just a little too late. While charitable giving is an excellent way of giving back while also reducing taxes owed, many clients have a poor grasp of the rules governing this practice. This makes the slow season an ideal time to review these rules and help clients make smart decisions about charitable donations. Here are 7 things we should be sharing with clients.

1. Double Check Non-Profit Status

Everyone likes a gift, but a gift only counts as tax deductible if it’s given to an organization that qualifies as a charity with the IRS. Luckily, there’s an easy way to make sure you’re giving to a qualified organization. Link your clients to the IRS’s Select Check Tool. They can use this link to determine the standing of organizations before donating.

Don’t forget to remind clients that churches, temples, mosques, and other recognized religious bodies are also included in this framework. Many regularly give to their religious organization without considering the financial returns on these gifts.

2. Keep Careful Track

In addition to donating to qualified organizations, it’s important that we remind clients to keep a full accounting of all charitable gifts. This is not just helpful in terms of determining the total amount donated, but absolutely vital when the time comes to file a 1040. The IRS requires that charitable gifts be itemized, so individual records of these gifts are indispensable.

3. Hold On To Thank You Cards

Cancelled checks or bank records aren’t always enough when it comes to documenting charitable donations. While small gifts can be deducted with less information, gifts totaling $250 or more require that you have written acknowledgment of the gift from the qualifying organization. Clients should be reminded to hold on to any acknowledgment of their gifts – these tend to be misplaced or thrown away in the course of the year, but they will be vital come tax time.

The written acknowledgment required by the IRS should include the date of the gift, the amount, and the complete name of the organization. Make sure your clients check any acknowledgment note for this information and have them contact the organization if any of this information is missing.

4. Make Market Assessments

Not all charitable gifts come in cash form and assessing the value of those gifts can be a challenge. Some gift categories, such as cars, have very clear parameters attached to value assessments, but others can be more difficult to estimate. One way to help your clients manage this problem is to connect them with a qualified appraiser in your area. This can help them avoid extended battles with the IRS over inaccurate estimates or unqualified appraisers.

The rules about non-cash gift appraisals are complicated, so it may also be worth creating a cheat sheet for clients explaining the ground rules for such gifts. By putting all of these rules in one place, you can make the final deduction calculations much easier come tax time.

5. Time And Skills Count

Just like you can deduct non-cash gifts, there are ways to deduct the time that goes into your volunteer efforts as well. Specifically, you can deduct 14 cents for every mile you drive when participating in volunteer work. You can’t, however, deduct for the time you spend volunteering. For example, according to this blog post from Park West Gallery, artists from the gallery created decorated maps that raised $13,000 for the Make-A-Wish Foundation. The time spent creating these art pieces cannot be deducted, but the money spent by those who bid on them at auction is deductible.

6. Big Investors Can Be Big Winners

Another donation that can really benefit clients is appreciated stocks. These gifts can be doubly beneficial because, when given directly to a charity, clients can avoid capital gains taxes and also deduct the total market value of the stocks, bonds, or mutual funds given away. If your clients have seen remarkable stock success in the past year and are regular donors, you might recommend this kind of gift to them.

7. You’ve Got All Year And Beyond

Postmark dates matter and credit cards are valuable tools in making the most of your clients’ annual contributions. Remind your clients that their donations only need to be postmarked by December 31st to qualify for that years’ tax return. Similarly, if clients are in a position where a donation would benefit them significantly but they don’t currently have the money, suggest giving online with a credit card. Clients can give this way now and pay it off later without impacting how it will count. A gift that isn’t paid off for months will still count for the prior year’s tax return.

The slow season can seem like a time to relax as tax professionals, but now is the time to help your clients prepare for the coming year. Use this time to the fullest by briefing your clients on the power of charitable donations to reduce their tax payments. A clear understanding of these rules can make a big difference to clients come tax season.

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