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Your 2016 deductions: Giving donations without being taken

The date written on a check will not

The date written on a check will not automatically qualify a donation for a 2016 deduction. Photo Credit: iStock

The United States is the world’s second-most generous nation in the world (after Myanmar), according to the Charities Aid Foundation, or CAF. Americans gave $373.25 billion in 2015 — and with changes to the tax code likely to occur next year, there could be a surge in giving in 2016.

Financial planners and tax preparers are urging clients to step up their charitable giving this year because deductions are likely to be less valuable or potentially go away in the coming years. As you rush to complete your donations, you should be aware that earlier this year, IRS Commissioner John Koskinen warned, “Fake charities set up by scam artists to steal your money or personal information are a recurring problem.”

To help avoid a costly mistake, here is a four-step checklist for your charitable giving.

CONFIRM THAT THE CHARITY IS LEGITIMATE One of the simplest scams perpetuated by fraudsters involves using a name that seems familiar to a nationally known organization. To help taxpayers conduct research on organizations, the IRS has established an online search tool, Exempt Organizations Select Check at irs.gov/charities-non-profits/exempt-organizations-select-check, which allows users to search for and select an exempt organization and check certain information about its federal tax status and filings.

Remember, there’s a big difference between “tax exempt” and “tax deductible.” Tax exempt means the organization doesn’t have to pay taxes. Tax deductible means you can deduct your contribution on your federal income tax return. Select Check allows you to find legitimate, qualified charities to which donations may be tax deductible. Legitimate charities will provide their employer identification numbers, or EINs, if requested, which can be used to verify their legitimacy through Select Check. The IRS notes that it “is advisable to double check using a charity’s EIN.”

RESEARCH CHARITY’S FINANCIAL HEALTH Once you have confirmed that the group is legitimate, you can also see what others say about the organization by going to the Better Business Bureau’s Wise Giving Alliance (give.org), Charity Watch (charitywatch.org/home) and GuideStar (guidestar.org/Home.aspx). You will also want to know that its finances are healthy and that it is efficient, ethical and effective. Charity Navigator (charitynavigator.org) provides a zero- to four-star rating system, which includes a review of each charity’s fiscal performance. The site also helps you understand what portion of your donation goes to support overhead versus what goes to the cause itself.

DETERMINE HOW YOU WILL DONATE TO THE CHARITY You should never send cash donations or wire money to someone claiming to be a charity. And don’t provide any personal or financial information until you’ve thoroughly researched the charity. If you are making a gift of appreciated securities from a taxable investment account, you will need to get information about how to send the assets; be sure to confirm all receiving account numbers.

If you are planning to send a check, your payments must be postmarked by midnight Dec. 31 — just writing that date on the check does not automatically qualify you for a deduction on this year’s tax return; and pledges aren’t deductible until paid. Donations made with a credit card are deductible as of the date the account is charged, so if you are a little late in the process, you probably should stick to credit cards.

KEEP GOOD RECORDS For donations of cash or property valued at $250 or more, you must have a receipt (bank record, payroll deduction or written communication) identifying the organization, the date and amount of the contribution and a description of the property. For text message donations, flag the telephone bill with the name of the receiving organization, the date of the contribution and the amount given.

Jill Schlesinger, a certified financial planner, is a CBS News business analyst. She welcomes emailed comments and questions.

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