Whether you wish to work with a charity through your business or on your own, you have a variety of ways giving. If you don’t have enough money to make a difference, you may have other assets a charity can use. Understanding the different types of nonprofits and what constitutes legal charitable giving will help you make a meaningful choice that helps others while you pay it forward.
Charities vs. Nonprofits
The term charity is often used to describe a nonprofit organization that helps others. Nonprofit organizations have different legal statuses, with not all being charities. A charity has an IRS designation that lets you receive a tax benefit when you donate cash or goods. Some nonprofits, such as trade associations, are tax-exempt, meaning they don’t pay some taxes, but donations to them are not tax-deductible. Ask any nonprofit you are considering donating to if they hold 501(c)(3) status and if you’ll receive a write-off if you donate. The IRS provides a list of nonprofit organizations at its website, irs.gov, which lets you see what type of exempt status each nonprofit has.
One form of charity is giving money. You can donate to charities using cash, checks or credit card, or online through a PayPal account or with your credit card. A receipt, cancelled check or credit card statement is not enough proof of donation in the event you’re audited, unless it comes with a notification that the amount is a tax-deductible contribution. Because not all payments to nonprofits are donations, the IRS needs to know what any payment to a charity is for to determine if or how much of the amount qualifies as a tax-deductible contribution. When you make any donation, get a document that has the exact tax-deductible amount clearly stated on it. Most charities are happy to provide this.
Many charities accept in-kind donations, which are donations of goods, products or some services. For example, if you own a business with slow-moving inventory, you can donate it to a charity and receive a tax deduction, which might amount to more than writing off the inventory at a loss. Some businesses donate goods to generate positive public relations and/or to promote product sampling. Many individuals donate their old cars to charities, especially if they will not get much trade-in value from a dealership. Instead of throwing out your old clothes or selling them for next to nothing at a yard sale, look into donating them to a thrift store run by a charity such as Goodwill or the Salvation Army. The IRS requires you to deduct only fair-market value for a donation in-kind, which prevents people and businesses from reporting inflated values to old, obsolete goods. Refer to IRS publication 561, “Determining the Value of Donated Property,” to learn more about donating goods. You cannot deduct the value of the time you donate to an organization, even if you provide a service such as bookkeeping or computer work. You can, however, deduct travel expenses to do the work. Refer to IRS publication 526, “Charitable Contributions,” for the mileage rate.
Some businesses sponsor the events of charitable organizations, but this may or may not be charitable giving, depending on the value of the sponsorship. Because the sponsorship is considered advertising, the business can write off the sponsorship as a deduction, but not a charitable donation. If an individual sponsors a golf hole at a charity tournament or a team in a charitable event, he will receive a tax deduction if the organization is a charity. If you play in a golf tournament or attend an event, only a portion of your fee is deductible. For example, if you pay $50 to play in a charity golf tournament that include cart and greens fees, a T-shirt, sleeve of balls and lunch, you are getting fair value for your $50. If you pay $500 to play in the tournament, you might be able to write off $450 off as a contribution.
You can you arrange for a living will, trust, annuity, home, real estate or life insurance policy to go to a charity upon your death. Many development departments at larger charities have experts to walk you through the procedures for setting these up. Your assets remain yours until your death, guaranteeing that if you get into financial difficulty during your senior years, you have access to your assets.
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