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Wednesday, November 14, 2012 8:45 PM

Tax expert: Give a little, get a little

By CRYSTAL HERBER, Herald Staff Writer

A charitable donation during the season of giving could provide benefits to both the giver and receiver. 

The fourth quarter is a time when gift giving is on many people’s minds, and charitable deductions might give residents a relief on their taxes in April, Lucille Hinderliter said. 

“There are so many limitations because part of the limitations are based on the level of your income and what you give, and part of it’s dependent on the type of entity you give it to,” Hinderliter, co-owner of Agler & Gaeddert, 234 S. Main St., Ottawa, and a certified public accountant for more than 30 years, said. 

A person is not limited on how many charitable deductions he or she may make in a year, but there is a limit to how much that person can deduct on his or her taxes, Hinderliter advised. The tax professional acknowledged that the tax code regarding deductions is complicated, but the general rule is that taxpayers can deduct no more than 50 percent of their yearly income. 

“[With] a cash contribution, such as by check, normally the limit is 50 percent of adjusted gross income (income before taxes and deductions) shown on your tax return for the year,” Hinderliter said, adding that in some cases 20-percent and 30-percent limits apply. 

Taxpayers should avoid waiting until the last minute to give charitable contributions, Hinderliter said. Making the donation before Dec. 31 should allow time for the charity to deposit it in the current year, so the donor can get a receipt for the current year, she said. A gift made through a credit card payment is automatically deductible, not when the bill is paid.

To qualify for deductions, the contribution must be made to a nonprofit organization with a 501(c) classification by the Internal Revenue Service. These can include, but are not limited to, organizations that are operated for one of the following purposes: religious, charitable, educational, scientific, literary or the prevention of cruelty to children or animals, according to the IRS’s Charitable Contributions handbook. Payments to individuals are never deductible. 

At least one local nonprofit relies on the gift-giving spirit of people during the holiday season. Hope House, 304 S. Walnut St., Ottawa, typically sees an uptick in donations this time of year, Mary Lois Yates, Hope House director, said. 

“A lot of times that’s our good time, because a lot of people are thinking about giving and wanting to help those that don’t have, so usually it is a good time,” Yates said. 

In recent months, the Christian-based, volunteer-led emergency relief charity has seen an increase in the number of young people coming in, Yates said. Last week, 90 people visited the charity’s clothing area. In addition, the food pantry had 660 adults, 470 children and 20 senior-citizen visitors last month. 

“[Donors are] going to be our lifesaver this year. Hopefully people will think of us this holiday,” Yates said. “Our funds are at such a low point that the board’s having to look at what we are able to do.”  

Almost 70 percent of the donations brought to Hope House go back to the community as food, clothing and other items. The remaining funds go to pay for administrative costs such as travel and operational costs, utilities and the salary of one employee. 

It is important to research charities before donating, Hinderliter said. Most charities can provide reports detailing how donations are being used to help those in need versus administrative costs. For instance, www.charitynavigator.org rates some of the nation’s big non-profit organizations based on what percentage of donations taken in are used to forward their causes. 

The IRS advises people to maintain a record of contributions made throughout the year. This can mean a bank record or written communication from the qualified organization with the name of the organization, the amount donated and the donation date. For any contribution of more than $250, the donor must get a written receipt from the organization that acknowledges the gift and states the donor did not receive goods or services in return for the gift. 

“The rules say that if you do not have a bank record or a receipt from the charity, you don’t have a deduction that you can claim,” Hinderliter said, giving the example that simply placing money in the offering at church would not qualify as a deduction. 

While maintaining such detailed records can be tedious, Hinderliter said, the records can help protect a taxpayer if the IRS performs an audit on the person after he or she has filed a return. 

“You have to have the receipt in hand by the time you file the return,” she said. 

Many nonprofit organizations operate locally, as well as at the state, national and global level. One longtime Hope House volunteer urged potential donors to choose a cause that speaks to their particular passions.

“I would encourage people, if they’re on the fence about giving, to find that place that really speaks to their heart,” Troy Hoffman said. “[Find a charity or cause] that’s doing something they believe in, that they are passionate about, and give and support that.” 

More information regarding charitable deductions, including what forms must be complete to qualify, is available at www.irs.gov or by contacting a tax professional.

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