Investing in You: Research, document, track charitable deductions

Perhaps you already gave money or charitable gifts in 2014 - or you plan to before year's end.

Either way, here are helpful tips in setting up a vehicle for your gift and documenting your donation.

First: Keep all paperwork and photos, or face the wrath of the Tax Man.

Second: Do your homework on the charity of your choice.

Third: Don't wait until the last day of the year. Your gift needs to be in the hands of your chosen charity by December 31 in order for you to reap the tax deduction; donating stocks and bonds, for instances, can take three days to settle.

In addition to researching the nonprofit's website, check out GuideStar (www.guidestar.org) to view tax returns. This is a tremendous resource available at no cost. Almost all nonprofits are required to file a public return, called a 990, 990-N, or 990-EZ, depending on size.

The largest organization in GuideStar's database for Philadelphia is, not surprisingly, the University of Pennsylvania, with income upwards of $5.7 billion.

Another line in 990 filings shows executive compensation.

It's debatable how much is too much, but if you feel the chief executive at a charity takes home too big a paycheck, you can choose another.

Smaller organizations, such as Taller Puertorriqueño, a Hispanic cultural and arts foundation on North 5th Street, with a budget of $730,000, may feel the impact of your donation more immediately.

Eddie's House, which helps teens aging out of foster care, takes donations of as little as $25 for a SEPTA bus pass, $50 for college application fees, or $250 for a GED study guide and the cost of a GED exam.

The IRA charitable rollover, which is up for renewal by Congress, allows individual taxpayers older than 70½ years to donate up to $100,000 from their individual retirement accounts (IRAs) and Roth IRAs to charitable nonprofits without having to treat the withdrawals as taxable income.

"The end-of-year tax bill is on everyone's list of 'must-pass' legislation because Congress can do what it wants," said David Thompson, vice president, public policy, for the National Council of Nonprofits.

Congress, for heaven's sake, make this permanent!

Giving money to your own personal donor-advised fund offers generally the same tax benefit as a straight donation, says Eileen Heisman, president of National Philanthropic Trust in Jenkintown.

A donor-advised fund is similar to a private foundation - but cheaper to set up.

"It's one donor giving to multiple charities. You can create a fund with your family's name and then you can advise grants going out the door to as many charities or people as you wish," Heisman explains.

National Philanthropic Trust's minimum to create a donor-advised fund is $25,000.

Brokerages such as Schwab, Fidelity, and Vanguard also set them up with as little as $5,000 in assets, as do smaller outfits such as the Triskeles Foundation in Exton.

At Triskeles, you can start with a $5,000 initial gift, with no required annual payout, no start-up costs, deductions of up to 50 percent of adjusted gross income (vs. 30 percent for a private foundation), no estate taxes, and no capital gains taxes.

Certified public accountant Martin Abo suggests documenting large noncash charitable donations.

The Salvation Army's online donation guide is a terrific place to start for estimates: (satruck.org/donation-value-guide).

A recent tax court case (Thad Smith v. the Commissioner of Revenue, October 2014) illustrates what's required. Smith claimed a deduction of almost $28,000 for donations of clothes, household goods and furniture, and electronics including computers and a printer. Because he failed to document everything, he was denied the deduction by the IRS.

First, deduct charitable donations only if you itemize on your tax return, Abo says.

Second, ask for written acknowledgment from the charity any time donations equal or exceed $250, describing what was donated and when. Get the letter in time to file your tax return for the year of the donation. Keep canceled checks and credit card statements.

Third, for items exceeding $500 in value, take photographs of items to support their quality and condition. Keep records of the date acquired, estimated purchase price, current retail value, and how the value was determined, Abo adds. Have items appraised if they exceed $5,000 in value. Whew!

The tax court decision is a reminder that "the IRS and the courts take the charitable donation documentation rules seriously," Abo advises.