Individuals who reduce their income taxes with itemized deductions for things like mortgage interest and real estate taxes are aware that they also can claim contributions to schools, religious organizations and other favorite causes. But many of them are unaware of other opportunities.
For instance, the IRS allows individuals who volunteer to help raise money or perform other chores for charitable organizations to deduct unreimbursed out-of-pocket expenses incurred while doing their work. Those expenditures must be linked to the volunteer work.
A broad range of outlays qualify. They include: travel to render services; telephone calls; postage stamps; stationery; and the cost and cleaning of uniforms not adaptable to ordinary wear that needs to be worn while performing services. For car travel, volunteers deduct either actual costs of gas and oil or use 2012's mileage allowance of 14 cents per mile. They also can claim parking fees and bridge or highway tolls. They can't deduct anything for the value of their time and services or for using their homes or offices to conduct meetings.
There are more tax trimmers for volunteers who have to be away from home overnight. They're allowed deductions for lodgings and 100 per cent of meals, unlike business meals, which are only 50 percent deductible. They also can deduct lodgings, meals and other out-of-pocket expenses at conventions connected with their volunteer work, as long as they're chosen to represent their churches, alumni bodies, etc.
If the IRS questions out-of-pocket expenses, it insists on substantiation. Volunteers need to be prepared to corroborate expenditures with canceled checks, receipted bills, diary entries and the like and to link spending with volunteering.
Now let's focus on conventional contributions. Don't simply write checks or use credit cards. Consider donating stocks, real estate or other investments that you've owned for more than 12 months and are worth more than you paid for them. Here's the double break: Besides deducting their full market value, you also escape the long-term capital gains tax that would have fallen due had you sold the shares.
Your planning comes undone when you donate depreciated stocks or other investments. Instead, sell the property, donate the sales proceeds to the charitable organization and claim both the donation deduction and the capital loss.
Contributions of stock or other property are deductible for 2012 as long as the gifts are completed by Monday, Dec. 31. But in some situations, completing the legal paperwork takes time.
The rules are straightforward for last-minute donations made with checks. Count checks as deductions for 2012 as long as the payments are put in mailboxes in sufficient time for letters to be postmarked by midnight Dec. 31. The IRS couldn't care less that the checks reach charities after 2012's close.
Credit card payments, whether for charitable donations, medical services, or business expenses qualify for 2012 deductions as soon as you authorize charges. This holds true even if the credit card companies don't bill you until 2013.
A final thought. Contrary to what many people mistakenly believe, they can't claim charitable contributions for purchases of raffle tickets from temples, schools and similar organizations that give them a crack at winning prizes. Their ticket payments come under the rules for gambling losses. While losses are allowed to the extent of any winnings, only itemizers can claim losses. Individuals who forego itemizing and use the standard deduction can't claim losses.
Julian Block is an attorney and author based in Larchmont, New York. This article is excerpted from "Year Round Tax Savings," available at julianblocktaxexpert.com.