Know these IRS rules for deducting last-minute charitable gifts

Real Estate Tax Talk

Charitable giving image via Shutterstock.Charitable giving image via Shutterstock.

If you plan to itemize your tax deductions for 2013, one easy way to reduce your 2013 tax burden is to make tax-deductible contributions to charity. If, for example, the marginal tax rate (top tax bracket) is 25 percent, each dollar you donate to charity in 2013 will reduce your 2013 federal income taxes by 25 cents. If your state has income taxes, you’ll save on those as well.

You still have a little time left to make a charitable gift and have the contribution count for your 2013 taxes. But you must act before Jan. 1, 2014, and make sure to follow IRS rules.

The basic rule is that a charitable contribution is deductible only when it is completed — that is, when the money or property is delivered to the charity. Thus, the mere act of making a pledge to donate cash or property in the future does not constitute a deductible contribution — you must actually deliver the money or property to the charity by Dec. 31, 2013, for it to be deductible for 2013. Exactly when a contributions is considered delivered to a charity for tax purposes depends on the type of contribution.

Checks

A check is considered delivered on the date it is mailed. However, a postdated check is delivered as of the date listed on the check, no matter when it’s mailed. For example, a check mailed on Dec. 31, 2013, but postdated to Jan. 2, 2014, is considered delivered on Jan. 2, 2014, and is not deductible for 2013.

Credit card payments

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Contributions charged on your credit card are delivered on the date the card is charged by the bank or credit card company. The same rule applies to electronic funds transfers.

The mere act of making a pledge to donate cash or property in the future does not constitute a deductible contribution."

Credit cards are a great way to donate cash because the donation is deductible in full in the year it is made even if the amount donated is not paid back to the credit card company until a later year. Thus, you don’t have to actually lay out any cash to get a deduction for the current year. This rule applies to any contribution made with borrowed funds.

Stock and other securities

When transferred electronically, a gift of stock is complete when it arrives in the charity’s brokerage account. When stock certificates are mailed, the gift is complete when it is postmarked. When certificates are hand-delivered, it is complete when it is physically received by the charity.

Real property and tangible personal property

Delivery of tangible personal property such as clothing, appliances, art or collectibles usually requires an actual transfer of possession of the property to the charity. For example, to take a deduction for a contribution of old clothing, you must actually deliver it to a charity by Dec. 31, 2013.

Record-keeping rules

Be sure to follow the IRS rules for record keeping for charitable contributions. Otherwise you could end up losing legitimate charitable deductions if you’re audited. You need to have a canceled check, account statement, receipt or other record for cash donations under $250 and an acknowledgement from the charity for donations over $250. For most property donations you’ll need a receipt or written acknowledgement. For detailed information, refer to IRS Publication 526, Charitable Contributions.

Stephen Fishman is a tax expert, attorney, and author who has published 20 books, including “The Real Estate Agent’s Tax Deduction Guide,” “Working for Yourself,” “Deduct It!,” and “Working with Independent Contractors.” His website can be found at fishmanlawandtaxfiles.com.

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