This is the time of year when families get together, exchange gifts, travel, celebrate the birth of Christ, shop, watch football, and generally eat more than they should, not necessarily in that order.
Many financial advisors will tell you this is also the time of year when many people wreck their finances by overspending. And, this overspending can have a ripple effect well into next year, perhaps even beyond that.
So, while we do all the activities mentioned above, and even though we may be extremely busy, let us not forget to take care of our finances, including managing our taxes so far as there are items we can manage.
This time of year is also often referred to as “the season for giving.” For many people this means making donations or contributions to their favorite charity.
So, here are a few tips to keep in mind as you go about making any last-minute contributions to help make sure you can count them on your tax return for this year, if you otherwise qualify to take the deduction.
How to Make Tax Deductible Donations
As a cash-basis taxpayer, you deduct the amount you contribute by check on the date you write, mail, and/or deliver the check. That means your contribution needs to be postmarked or delivered on or before December 31 for it to count as a donation for that year.
If you make a contribution by credit card, the day you charge the contribution to your credit card is the day the contribution is deductible.
Some Contributions Are Not Deductible
You also need to be aware there are some contributions that you cannot deduct, such as contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person. But you can deduct a contribution that you give to a qualified organization that in turn helps needy or worthy individuals if you do not indicate that your contribution is for a specific person.
Example. You can deduct contributions for flood relief, hurricane relief, or other disaster relief to a qualified organization. However, you cannot deduct contributions earmarked for relief of a particular individual or family.
Records to Keep
You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount of your contributions and whether they are:
- Cash contributions,
- Noncash contributions, or
- Out-of-pocket expenses when donating your services
However, the details of what records to keep is a topic for another day.
For more information about tax deductible donations, contact your tax advisor or see Chapter 24, Contributions, in Publication 17, Your Federal Income Tax for Individuals, available online at http://www.irs.gov/pub/irs-pdf/p17.pdf.