After their Thanksgiving dinner, Tandreia Bellamy and her two teenage children headed to the Fox Valley Mall near Chicago to do some shopping, but they had no intention of seeking bargains for themselves, friends or relatives.
With the holiday spirit ingrained, they hunted for trendy sweaters, jeans, boots and hair accessories for teenage girls in the ChildServ group home in Naperville, Ill.
"My kids are blessed, and many children aren't as fortunate," said Bellamy. "I just want to make the holidays a happier event for these girls. ... And I know that when children are given opportunity and nurturing, they can flourish."
As a ChildServ board member, Bellamy's commitment is fulfilled through volunteer activities and cash donations.
The holiday season, and the end of the tax year, is a key time of year for writing checks to charity. According to a 2011 analysis by the National Philanthropic Trust, 88 percent of American households provided donations totaling $298.3 billion. The largest beneficiaries are religious institutions such as churches and synagogues. Next are education and human services. Meanwhile, 64.3 million people volunteer, donating about $296.2 billion through deeds that span the entire year.
Bellamy said she won't be taking any deduction for the gifts she is providing the girls in the ChildServ home, because "it wouldn't feel right. These gifts are from the heart," she said. Yet she will deduct the cash contributions she gives to her church and other charitable groups.
It's possible for Bellamy to deduct both the clothing and money, but she'd have to make a simple change in her approach with the clothes she's giving the girls. Contributions cannot be deducted if they go directly to a person, but they are eligible if they go to an authorized charitable organization. Check these websites to see whether organizations are eligible nonprofits and good managers of donations: CharityNavigator.org, GuideStar.org and the Better Business Bureau, at Bbb.org/us/charity. Try to pick organizations that don't spend more than 20 to 25 percent on administration.
Recently, the Internal Revenue Service tightened some charitable deductions because "people were getting piggish," said Dan Morris, a San Jose, Calif., certified public accountant. Now, if you provide a car to an organization and the organization sells it for scrap, you will get only the value of the scrap, not Kelley Blue Book value. Used clothes must be listed individually with appropriate values, and the organization that receives them must approve the list and provide a receipt.
Financial advisers encourage clients with stocks or other investments that are far more valuable than when they purchased them to give those investments directly to charitable organizations instead of cash.
When an individual gives a stock or other investment to an organization, the charity sells it for its full value and doesn't have to pay any tax on it. If, instead, an individual had sold the investment, they would have owed capital gains taxes on any value added since it was purchased.
"People in the 43 percent bracket could give $10,000 in investments and reduce their tax bill by $4,300," said Morris. "The rich get a better benefit than the poor with charitable contributions."