Ice Bucket Challenge Raises the Bar for Charitable Donations

The incredible success of the ALS Association’s (ALSA) viral “ice bucket challenge” provides a new goal for charities everywhere and provides a reminder of the tax benefits of such donations.

The ALSA raises money to combat amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s Disease. The charity raised $94.3 million in donations between July 29 and Aug. 27, up from $2.7 million during the same time period in 2013. Much of the increase has been attributed to the ice bucket challenge, where people use social networks such as Facebook and Twitter to challenge others to donate to the ALSA or dump a bucket of ice water over their heads, although many people do both.

In addition to the good feeling (and social acceptance) that comes from accepting the challenge, charitable donations offer tax benefits for taxpayers. Donations are deductible in the year they’re given (not pledged), and last-minute donations are deductible as long as they’re made before midnight Dec. 31.

Taxpayers can also consider donating stocks, real estate or other investments they’ve held for at least 12 months, but the tax strategy depends on whether the investments have gained value. If they have, you can deduct their full market value and escape the long-term capital gains tax that would have been due when you sold the shares. If the investment has depreciated in value, it’s best to sell them, donate the proceeds to the charity and claim the donation deduction and the capital loss.

So charitable donations benefit both the charity and the donor. Think about that the next time you see someone reach for a bucket of ice water.

IRS Offers Tax Tips for Charitable Donors

Taxpayers who donate to charities may be eligible to take a deduction for their donations on their 2011 tax return. On Monday, the U.S. Internal Revenue Service (IRS) offered guidelines for taxpayers who want to deduct charitable donations:

1. Make sure the organization qualifies. Only donations to qualified organizations are deductible. You can ask any organization if it is qualified or search on the IRS website.
2. You must itemize deductions. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. You can only deduct certain contributions. You generally can deduct cash contributions and the fair-market value of most property you donate. Special rules apply to certain types of donated property, such as clothing, household items, cars and boats.
4. Receiving something in return changes deductions. If your contribution entitles you to receive merchandise, goods or services in return, including admission to events, you can deduct only the amount of your contribution that exceeds the fair-market value of the benefit.
5. Keep track of your contributions. Keep good records of any contributions you make, regardless of amount. For cash contributions, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity that contains the date and amount of the contribution, as well as the name of the organization.
6. Timing of payments is important. Only contributions actually made during the tax year are deductible. For example, if you pledge $500 in September but only pay the charity $200 by Dec. 31, only $200 is deductible. However, include late-in-year credit-card charges and payments by check in the year you give them to the charity, even if you don't pay the credit-card bill or have your bank account debited until the next year.
7. Keep records of large contributions. For contributions of $250 or more, you'll need a written acknowledgement from the organization that includes the amount of cash and whether or not the organization provided any goods or services in exchange. If you donated property, the acknowledgement must include a description of the items and a good-faith estimate of their value. For items valued at $500 or more, you must attach a completed Form 8283, Noncash Charitable Contributions, to your return. If you claim a deduction for contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283.
8. Organizations can lose their tax-exempt status. Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years. Donations made prior to an organization's automatic revocation remain tax-deductible, but going forward, contributions to these companies that are not reinstated are not eligible for tax deduction. Click here for a list of organizations who lost their tax-exempt status.