Charitable giving is a key topic in fee only wealth management, and client interest in the topic usually peaks around the holiday season. Not only are people more charitably inclined that time of year, but they also want to make the contribution prior to year-end for tax purposes. Lastly, this year in particular there has been a surge in interest from people about how to help those groups that appear at risk post-election. We have some information on how to research charities at the end of this post, and we’ll list specific charities in the coming week on our Facebook page.

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In any event, for a donation to be tax deductible, it must be made to a qualified organization. The IRS outlines the types of organizations that are qualified here, but organizations can typically confirm whether or not a donation is tax deductible. The donation must take place before the end of the tax year, and if you are donating anything other than cash, you can typically deduct the fair market value of your donation. While determining the market value isn’t part of what we do in providing fee only wealth management, fortunately, IRS Publication 561 provides some valuation guidance, and several charitable organizations including Goodwill and the Salvation Army provide suggestions as well.

The IRS does limit the charitable deduction that can be taken in any given year, and the amount of deduction depends upon the type of charitable organization. The deduction limit for most charitable organizations – including foundations –  50% of adjusted gross income for a given year, although for some organizations, the limit is 30% of adjusted gross income. Note that any deduction that can’t be taken in a given year can be rolled forward to future years until the full amount is taken.

One last thing you’ll want to be sure of is that you maintain documentation of the charitable contribution. For donations in excess of $250 or more, the IRS requires written acknowledgement from the organization receiving the contribution and for donations in excess of $500, you’ll need to file form 8283. Finally, donations of items or a group of similar items valued in excess of $5,000, you’ll need an appraisal by a qualified appraiser.

One of the most satisfying aspects of fee only wealth management is the opportunity to support clients who want to improve the world around them. A good place to start researching charities is Charity Navigator. Charity Navigator is a non-profit itself, and they describe what they do as follows:

Charity Navigator’s rating system examines two broad areas of a charity’s performance; their Financial Health and their Accountability & Transparency. Our ratings show givers how efficiently we believe a charity will use their support today, how well it has sustained its programs and services over time and their level of commitment to good governance, best practices and openness with information.

Beyond using Charity Navigator, take a look at the charity’s website to gain a better understanding of their mission and specifically what they do. They might also have a local chapter, and if so, you might feel better about making a donation to a “local” organization. There are myriad options out there, and if you are concerned about the social impacts of the recent election, finding a charity to work with may help lessen those concerns.