11/20/2012 04:49 pm ET Updated Jan 20, 2013

'Tis the Season for Donating Money


Like many other economic measures, charitable donations in the U.S. have yet to bounce back to pre-recession levels. According to Giving USA: the Annual Report on Philanthropy, charitable contributions totaled $298.4 billion in 2011 -- up 4 percent from 2010, but still 11 percent below 2007 levels.

As in previous years, the vast majority of those contributions (73 percent) came from individuals, demonstrating that even during tough economic times, people still find ways to support organizations that help those less fortunate than themselves.

Because half of all donations typically are made between Thanksgiving and New Year's, this is a good time to highlight precautions you can take to ensure your gift has the biggest possible impact, both on the people you want to help and on your own bottom line; also to remind seniors about a tax policy that has changed since last year:

Contribution eligibility. If you itemize expenses on your 2012 income taxes, any charitable contributions you plan to deduct must be made by year's end. That means either charging your credit or debit card or postmarking a check by midnight on December 31, 2012.

You must have a receipt to claim deductions for cash or property, no matter how small. A cancelled check or credit card statement is fine for contributions under $250, but amounts over $250 require a written statement from the charity. See IRS Publication 526 for details.

Note: If you buy something at a charitable auction, you can only deduct the amount above its fair market value, so get documentation from the organization (e.g., a catalog showing a good-faith estimate). On the other hand, if you donate an item for auction, you can only claim your "tax basis" in the item -- that is, the amount you originally paid for it, vs. its current fair market value.

Confirm tax-exempt status. For your contribution to be deductible, the organization must be recognized as tax-exempt by the IRS. It's important to note that in recent years the IRS has revoked the tax-exempt status of scores of nonprofit organizations because they didn't file annual reports for three consecutive years, as required by law. Use this IRS Exempt Organizations Select Check tool to ensure an organization's eligibility.

Get bang for your buck. Make sure any non-profit to which you donate is well-run. Ideally the organization applies at least 75 percent of contributions to programs that serve its beneficiaries, versus spending on salaries, advertising, fund-raising and other administrative expenses.

Study the organization's website, annual report and mission statement, and ask for a copy of its IRS Form 990, which details how contributions are spent. Speak to staff members or volunteers, or volunteer there yourself. Or, if you know someone who has used its services, ask for their impressions of the organization's efficiency and helpfulness to clients.

Several other resources can help with your research:
  • IRS Topic 506 - Charitable Contributions can help you navigate IRS policies regarding charitable donations.
  • Charity Navigator rates nearly 5,500 large charities by financial strength, revenue spent on programs and services and other criteria. Their Top 10 Lists and Tips for Donors provide helpful evaluation tools. You can adapt their evaluation guidelines to formulate your own inquiries for smaller organizations.
  • At GuideStar, you can review financial summaries and other data for more than 1.8 million IRS-qualified organizations. Its basic search engine is free; or you can order more customized research for a fee. The site also features helpful questions to ask and tips for choosing a charity.
  • Charity Watch is a nonprofit charity watchdog and information service whose Charity Rating Guide rates approximately 600 major American charities on how they spend donor money.
  • The Better Business Bureau rates whether organizations have met its standards of accountability, including ethical conduct and honest solicitation practices.
Guard against fraud. Unfortunately, some unscrupulous people and organizations will take advantage of your desire to help others -- if you let them. A few tips:
  • Be suspicious of telemarketing and email solicitations. When in doubt, hang up or delete the email and contact the organization yourself.
  • Be aware that scammers often choose names that are similar to those of legitimate organizations.
  • Never give out personal or financial information unless you initiate the contact.

No more direct IRA distributions. A major tax break for senior citizens regarding charitable contributions expired at the end of 2011. Formerly, people over age 70 ½ could contribute up to $100,000 from their IRAs directly to charity and have it count toward their annual IRA Required Minimum Distribution. This allowed seniors to avoid having to count the funds as adjusted gross income, thereby reaping a tax advantage even if they didn't itemize deductions. Thus far, Congress has given no indication it will reinstate the direct donation rule.

And finally, if you can't afford a cash donation but still want to help, consider donating your time. Numerous organizations can match you up with local charities that suit your interests, including the government's United We Serve site, Network for Good,and Volunteer Match.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.