At this time of year, it’s easy to get caught up in the holiday gift-buying frenzy. But one of the greatest joys of the season is sharing with others who may not be as fortunate as you.
The holidays also provide great opportunities for children to learn about the importance of charitable giving through Angel Trees and many other programs and organizations.
Reaching out to others can be as easy as dropping some cash in a collection box. If, however, you want to be able to take the deduction on your tax return, the Internal Revenue Service has specific criteria that you have to meet. Here are a few rules to keep in mind as you get the whole family involved while still preserving your charitable deduction for income tax purposes.
Timing matters
In order to take the deduction for 2013, your gift must be completed by Dec. 31, 2013. That means that the check must be in the mail, the charge must be on the card or the item must be donated by year end.
Organizations, not individuals
You can only deduct gifts made to qualified charitable organizations, not individuals. When making the decision about how best to help, keep in mind that you can only deduct donations to organizations which are eligible to receive tax-deductible charitable contributions. That means, for example, that you can’t deduct the value of gifts for the family down the street — even if they truly are deserving. If you want to focus on one family or shop for a particular child, be sure to work through an established charitable organization like the Salvation Army or United Way. If you’re not sure about an organization’s charitable status, ask for a copy of their IRS determination letter or search online at Exempt Organizations Select Check.
Deduct the value of materials
You can only deduct the value of the materials when you make things. Kids love to make things — especially candies and cookies. Homeless shelters, churches, food pantries and other organizations are often in search of homemade goods for bake sales and soup kitchen lines. When valuing those items, you cannot deduct the fair market value of the gift — the value of the items is limited to the cost of the goods (or, in the case of homemade goods, the ingredients). So, those macaroons that you sent to the local homeless shelter? You wouldn’t deduct the price you’d pay at the grocery store but rather the cost of the sugar, eggs and almonds in the recipe.
You can’t deduct the value of your time
One of the easiest ways to get your children involved in charity is to volunteer your time. You can’t deduct the value of your time — even if you can measure it — but you can deduct the cost of out-of-pocket expenses associated with volunteering. This includes the cost of getting to and from your volunteer spot (yes, mileage counts, too).
Clean out your closets
You can deduct the thrift shop value of used items in good condition (or better). Having your kids go through their closets and toy chests for clothes and toys they’re no longer using is a good way to involve them in charitable giving. After your kids sort through their things, don’t stop there — take your kids with you to the charitable organization when you drop off those items.
Small is better than nothing at all
It’s OK to start small. Teach your kids that every gift counts, no matter what size, by allowing them to donate a jar of coins collected throughout the year. So long as you have enough cumulative deductions to itemize on Schedule A, there is no minimum donation amount to claim the charitable deduction.
Get moving
There are a number of walks and charity runs at the end of the year. Not only are these great ways to burn off all of those extra calories from pies and turkey, but choosing one that benefits a charity allows the whole family to make a difference. You may not deduct the cost of registering for a charitable walk or run — or the value of your time — or the value of the cute new shoes you bought for the event but you can deduct “extra” donations that you make over and above the registration fees.
The holidays are such a great time to teach your family the importance of charitable giving and working together. Don’t think you’re limited, however, to simply conveying the message — you can benefit from a charitable deduction on your income taxes, too.
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