Having donated a record $1.4 billion to disaster funds devoted to Sept. 11 relief, Americans are digging deeper this holiday to make additional gifts to charity and get more tax deductions.
The generosity of Americans has nonprofits nervously hoping year-end donations don't fall short since the economic downturn has increased need. As Harry Meyer, head of the Second Harvest food bank for 21 West Tennessee counties, put it, "Sept. 11 was a terrible thing, but I've got folks down here who have been in great need before Sept. 11, on Sept. 11 and after Sept. 11."
No doubt most Americans who gave to Sept. 11 charity drives weren't thinking about tax breaks, but now that taxpayers are looking for last-minute write-offs, the charity deduction may be extra reason to be extra-generous this year.
The deduction for 2001 goes only to taxpayers who itemize. President Bush's plan to let people who take the standard deduction write off contributions, didn't make it into the $1.3 trillion tax cut bill, but a similar measure could become law by the 2002 tax season.
Meantime, these tax rules apply to charitable gifts:
- CASH is the most common gift. Whether it's change tossed into a Salvation Army kettle or a large check written to a favorite charity, keep track of cash gifts - and get a receipt for anything of $250 or more.
Except for houses of worship, charities need IRS approval before gifts are tax-deductible. To check if a charity has IRS approval, check IRS Publication 78, "Cumulative List of Organizations." It's online at www.irs.gov in searchable form, and you can also check charities' track records at the Wise Giving Alliance site, www.give.org.
- PROPERTY GIFTS can be discards from your closets: While you get out holiday decorations, cull any old clothes, shoes and toys for Goodwill, a church drive or shelter that takes secondhand goods.
Other groups take only new merchandise, including Toys for Tots, which is run by the Marine Reserve. It has given 270 million toys to 133 million needy children in 53 years.
For new items, you usually deduct what you paid. For used items, write off what they would sell for at a thrift shop. New or used, get a receipt.
If you donate an old car, claim only the fair market value, given mileage, accessories and general condition, and make sure the charity is legitimate. Beware if the charity promises you can write off Blue Book value; that's an invitation to a tax audit. Deduct $500 or more, and add IRS Form 8283 and the charity's receipt to your tax return; write off $5,000 or more and get an independent appraisal from a garage or car dealer, too.
- INVESTMENT DONATIONS allow taxpayers to give appreciated stocks, bonds and mutual funds. In return, you get a bigger deduction than if you gave cash.
But today's down market may make it wiser to sell a dog stock, donate the money to charity and take the capital loss on your taxes, says personal-finance manager Tom Pudner of KPMG, a national accounting firm. Subtract the loss from any profits you made on other stock sales and also from $3,000 in salary and other ordinary income. Additional losses carry forward to future years.
- DONATED TIME also qualifies for tax breaks.
Engineers, welders, cooks, medical professionals and other volunteers at New York's Ground Zero and the Pentagon can't write off their professional services, but they can deduct incidental expenses. Lodging and meals qualify under IRS rules if "no significant element of personal pleasure, recreation or vacation" was involved.
Also, all volunteers can claim a standard mileage deduction of 14 cents a mile, plus parking and tolls, for charitable travel.
Sept. 11 got the IRS to ease up on donated days of paid vacation: They won't count as taxable income. Employers from coast to coast sent vacation-donation programs so workers could convert vacation time to cash for relief efforts. Others like Marriott International let employees donate time off to 1,100 co-workers idled when the World Trade Center's collapse shut two Marriott hotels.