The air will soon be getting frostier, you're beginning to ponder your holiday travel plans, and a pile of charity solicitations is jammed in your mailbox. The end of the year is approaching.
In fact, November and December are the biggest months for charitable donations, accounting for a quarter of the year's haul to U.S. charities, according to Blackbaud, a leading cloud software company powering social good.
While giving is its own reward, getting a tax deduction for generosity makes it a little more rewarding. Unfortunately, people don't always get all the deductions they're entitled to.
"The biggest thing I see is that people just don't remember what donations they made, and they forget to take the deduction," said Lisa Lewis, a CPA and tax expert with TurboTax.
You'll also miss out if you don't itemize your deductions. Charitable gifts, like any other deduction, go on a Schedule A. Watch out for some other common pitfalls during this season of giving.
Is it a charity?
You can only deduct gifts made to nonprofits organized under the IRS's 501(c)(3) section. It can be confusing, because organizations can be classified as nonprofits even though they're not charities.
"Your local country club is a nonprofit most of the time, but it's not a charity," said Carol Kroch, director of philanthropy with Wilmington Trust.
The lines are blurred further in the age of crowdfunding. You won't get a tax deduction for contributing to someone's GoFundMe page.
Charities really like donated stock because people can stretch a little more. For anything more complex than writing a check, I'd get going in November.Carol Krochdirector of philanthropy with Wilmington Trust
"You can't make a contribution to an individual for their mission trip and get a deduction," explained CPA and certified financial planner Lisa Featherngill, managing director of wealth planning with Abbot Downing, Wells Fargo's ultra-high-net-worth business. "But you can give to a church and ask that the money go for the mission trip for that person."
All the charities in the GuideStar.org database have met the requirements for exempt organizations. To go the extra step in your due diligence, Charity Navigator can help you determine how much of a charity's average donation goes toward its mission rather than overhead.
Get it in writing
Whenever you give money to a charity, you need to document the give, either with a canceled check or a credit card receipt. Gifts over $250 require a letter from the charity, which you must obtain before filing your taxes.
"The IRS has been very clear that you can't file your return and then six months later get a letter because the IRS asked you for it," said Tim Steffen, director of financial planning with Robert W. Baird & Co. "You need a letter that says what you gave, what it was worth and when you gave it."
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Appraisals for noncash gifts
If you want to donate something other than cash, the rules are more complicated. For gifts worth more than $5,000, you'll need to attach a recent appraisal that determines the value.
"Anything that's not cash and non-publicly traded stock, the value is uncertain, and it has to be established," said Wilmington's Kroch.
There's a distinction between donations to organizations that will use the artwork as opposed to those that plan to sell it for cash. For example, you'll get a bigger deduction by giving a painting to a community service organization that will display it in its entryway than to one "that doesn't even have a wall to hang it on," said Kroch.
In the first case, you can deduct the fair market value. But if the organization sells the piece, you can only deduct your basis — in other words, what you paid for it. If that's the case, you might think twice about making a donation of art that's appreciated over the years.
When it comes to used cars, those rules are different. Until recently, you could estimate the fair market value. But now you are limited to the amount the charity is able to get for selling the car.
"People were taking the Blue Book equivalent for a beater of a car that they couldn't even push out of the garage," said Steffen of Baird.
No write-off if you enjoy it
You're also not allowed to take a tax deduction if you receive something in exchange.
"You can only deduct the amount you paid in excess of the value," said Abbot Downing's Featherngill.
Say you are the winner of a $50 gift certificate at your child's school auction. If you only paid $45 for it, you don't get a deduction. But if you paid $60, then you can deduct $10.
The same thing goes for raffles, even if you don't win. "You were hoping that your donation will turn into a bigger payoff," explained Sheryl Rowling, a CPA and CFP who is principal of Rowling & Associates
Bigger bang with stock
Donating appreciated stock or mutual funds can get you an even bigger deduction, as long as you've held the stock for at least a year. You can deduct the security's fair market value. "You can really multiply the value of your charitable dollars that way," said Rowling.
Let's say you bought a stock for $100 and now it's worth $1,000, leaving you with $900 of capital gains. You won't keep all $1,000 when you sell, because of the capital gains tax. But by donating it, you can deduct the $1,000 from your taxes.
"Charities really like donated stock," said Kroch, "because people can stretch a little more [and make bigger donations]."
Remember, not all charities are set up to receive stock donations. The charity must have its own brokerage account to be able to receive the securities. It may take a few weeks to set everything up, so start early.
"For anything more complex than writing a check, I'd get going in November," advised Kroch.
— By Ilana Polyak, special to CNBC.com