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4 things to know when you make donations

Proceed with caution, investigate the charity, keep records

The year-end is often the time when people make charitable gifts. Here is a four-step refresher on giving.

1. CONFIRM that the charity is legitimate. To help taxpayers conduct research, the IRS has established an online search tool, Exempt Organizations Select Check, which allows users to search for exempt organizations and check certain information about their federal tax status and filings. (“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.)

2. RESEARCH the charity’s financial health. Once you have confirmed that the group is legitimate, you can also see what others say about it by going to these websites: Give.org, run by the Better Business Bureau’s Wise Giving Alliance; CharityWatch.org, run by the American Institute of Philanthropy; and GuideStar.org.

You will also want to know that the charity’s finances are healthy and that it is efficient, ethical and effective. CharityNavigator.org provides a zero- to four-star rating system, which includes a review of each charity’s fiscal performance. The organization’s CEO, Michael Thatcher, told me that their team of professional analysts has examined tens of thousands of nonprofit financial documents to develop an unbiased, objective, numbers-based rating system to assess more than 8,000 of America’s best-known (and some lesser-known but worthy) charities.

3. DETERMINE how you will donate to the charity. Never send cash donations or wire money to someone claiming to represent a charity. And do no not provide any personal or financial information until you’ve thoroughly researched the charity.

If you are planning to send a check, your letter must be postmarked by midnight Dec. 31 to count for the current tax year. Simply dating the check “December 31” does not automatically qualify you for a deduction this year. Likewise, 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.

If you are making a gift of appreciated securities from a taxable investment account, which allows you to write off the current market value (not just what you paid) and escape taxes on the accumulated gains, you will need to get information about how to send the assets. Be sure to confirm all receiving account numbers.

You can make a “qualified charitable distribution” (QCD) from an IRA of up to $100,000 to a public charity in place of taking your required minimum distribution (RMD). You don’t have to include the QCD in your taxable income. Be sure to follow the IRS rule carefully.

4. KEEP good records. For any 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.

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