Make Your Charitable Endeavors Count at Tax Time
Following Hurricane Katrina, private donations hit a record high of more than $400 million in early September. That influx of private giving clearly demonstrates American's charitable inclinations. If you donate, give your gifts the power to help not just the organizations and people you support, but also your bottom line at tax time.

Give a Winner
If you donate appreciated securities you've held for more than a year, you can receive a full, fair market value deduction. Any unused portion of the deduction can be carried forward for up to five years. In addition, no tax is due on the capital gains. If you own depreciated securities, you can sell them, take the tax loss and then receive a deduction for donating the proceeds to charity.

Greater Gifts Have Greater Limitations
If you are considering a very large charitable donation, keep in mind that your deduction may be limited to a certain percentage – 20%, 30% or 50% – of your adjusted gross income. The exact amount will depend on the type of charity and whether you contribute cash or other items. However, contributions that exceed the applicable limit can be carried over for up to five years and may be deductible in the future.

Rules for the Road
In the past, you could take a deduction for the full fair market value of a donated automobile. However, stricter rules now apply if the claimed deduction is greater than $500. Beginning this year, the amount you may deduct will depend on how the donated vehicle is used by the charitable organization. For example, if the organization immediately sells the vehicle, your deduction may be limited to the amount of gross sales proceeds the charity itself receives. In addition, charities are now required to issue detailed written acknowledgments to vehicle donors. The IRS can then require organizations to disclose that information, allowing the government to check it against donors' tax returns.

Accounting for Your Gift
You are entitled to a deduction equivalent to the net amount of any contributions you make to a qualified charitable organization, after accounting for any goods or services you may have received in return. That means if you attend a charity dinner or receive a gesture of thanks for your gift, your deduction amount will be reduced by the value of what you received. Most charities make the accounting easy by assigning a value to any thing they give to donors. But you'll need the proper documentation to prove to the IRS that you made a contribution. Depending on the size (and nature — i.e., cash vs. noncash) of your contribution, those requirements may vary. And keep in mind that not all nonprofits are considered qualified charities for tax purposes. A master list of qualified organizations can be found on the IRS Web site at www.irs.gov.

Generally, only those taxpayers who itemize deductions on their tax returns can realize tax savings from charitable giving, although there are exceptions. Like most tax laws, the rules surrounding deductions can be complicated – and subject to change. For that reason, you should consult a tax professional before committing to any gifts based on the expectation of tax savings.

Neither Mesirow Financial nor its employees provide tax advice.

This article originally appeared in the 2005, 4th quarter edition of the Mesirow Financial Quarterly. Click here to access the current and all past issues of the Quarterly.