TAX SEASON: Dealing With Charity

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She may play a greedy, desperate housewife on ABC (DIS), but in reality, Eva Longoria is all about giving it away (to charity).

On March 4 Longoria, who is the national spokeswomen for PADRES Contra El Cancer, a non-profit that supports Latino children with cancer, accepted a $200,000 donation from AT&T (T). "The money AT&T raised will help us continue supporting families coping with the devastating effects of childhood cancer," she said.

But, while your own charitable giving may not reach six-figures, any large uptick in gifts this year is going to catch the attention of the IRS. However, with a little careful planning you can be sure that a potential audit will not leave you regretting your generosity. (Yes, we know Eva didn’t donate the $200,000 out of her own pocket—in this case—and therefore doesn’t have to worry about tax implications, but work with us.)

When making any donation you plan to claim, keep the paperwork to prove your good deed, says Jackie Perlman, a lead tax researcher for the Tax Institute at H&R Block (HRB). “You can’t avoid being red flagged when you make a large donation,” says Perlman. “Your concern is backing up the deduction you took. Have the proper documentation to prove you donated to a qualified charity.” Whether the donation is cash, stocks, or even a car, “get that ‘Thank you for the $10,000 donation,’ says Perlman. “You need the acknowledgment from the charity and you need a bank record of the transaction.” A cancelled check, or a credit card or online donation receipt, will suffice so long as you “verify at both ends that you really paid it and they really received it,” says Perlman. To make sure you are donating to a qualified charity, check the online list kept by the IRS called Publication 78.

Stocks and cars are hot ticket donations these days, so it is important to know the rules with these write-offs. For stocks, “if they’ve been owned for more than 12 months, then you can deduct the fair market value,” says Dr. John Stancil, Professor of Accounting at Florida Southern College. “If it’s valued at more than $500 [you] will need to complete form 8283. If you buy 100 shares of stock at $10 a stock that’s a $1000 investment. If the stock goes to $50 a share, that’s a $5,000 investment. With that donation you can deduct $5,000 and you don’t pay tax on that amount, only the appreciation.” Meanwhile vehicles also require follow-up to determine the donation's ultimate value. “If a charity sells your car, the maximum you can deduct is what the charity sold the car for,” says Perlman. “The value of $50,000 is very clear. With a car, there are more variables. They’re very strict now with donating cars because it’s the biggest ticket item after cash or stock.”

Finally, after all the giving, rather than worrying about an audit form appearing in the mail, prepare for it to happen, says Stancil. There are two kinds of audits, says Perlman, a correspondence audit and an office audit. “One is just a letter asking for proof of whatever is contested. The rarer one [office audit] is the face-to-face audit.” Perlman strongly recommends those with office audits seek out a tax professional, a CPA, or an attorney for help. “That person is trained to deal with the IRS," says Perlman. "They won’t get upset, cry or yell. They know when to ask for a supervisor.”

 

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