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Friday, December 27, 2013

Charitable Giving and End of the Year Bookkeeping

One of the things I tackle in the last couple weeks of the year is reviewing our accounts and making final charitable contributions for the year.

While I give to various organizations throughout the year, my household's income varies from year to year, so doing an end-of-the year review shows how much we can afford to give in a given year.

Where Should the Donations Go?

The first task is shifting through the pile of charitable requests that has been growing since September or October.  Some requests are local and easy to evaluate, e.g., the local music school, public radio station, and local food back.  For the other requests, I read the literature to see what they say they are doing.  Do I want to give money to grant wishes to sick kids, support education, or buy chickens for people in the developing world?

In addition, I do some research to determine how much of the money actually goes to the stated mission.  For some organizations, a lot of money goes to consultants, marketing, and unrequested return address stickers.  Everyone considering making a contribution should definitely do this research for charities that are new to them, but it doesn't hurt to review organizations that you have been supporting for some time.
There are a number of sites that provide evaluation of the "efficiency" of national charities, including
It's important to keep track of how much money you gave to each organization.  
  • You can refer back to this number for next year.
  • If you itemize your taxes, you can deduct your charitable donations.
If you are deducting your donations on your tax returns, you must maintain proof of the contribution. According to the IRS, the following can be used as proof of donation for amounts under $250.
  • Bank records, such as a canceled check or credit card statement.
  • A receipt or letter from the organization showing the name of the organization, the date of the donation, and the amount of the donation.
  • Proof of a payroll deduction such as a pay stub or W2 form showing the date and the amount of the donation and a pledge card or other documentation showing the name of the organization.
For a donation $250 or more you must have a letter from the organization showing the name of the organization, the date of the donation and the amount of the donation.

You do not need to provide this proof when your file your taxes, but you must produce the proof of contribution if you return is audited.   According to another IRS document, most audits happen within three years and in cases of substantial error they may go back six years, so it is generally recommended that you keep this information for seven years.

How Can SafelyFiled Help?

Historically, my approach to filing these donation proofs has involved putting the organization letters into one or more folders, then frantically looking for this information around tax time and hassling my husband for his letters.  As a final step I place the letters into a shoe box and put the shoe box in the basement to age.

This year I've been using SafelyFiled to take a more reliable and systematic approach to tracking letters and receipts for taxes.  For donation letters that arrive via email, I just forward them to my SafelyFiled email address, and the system uploads the letter to my account.  For donation letters that arrive via physical mail, I scan and upload the letters.  I tag the letters with the year and the tag "tax".  I also set a reminder for 7 years in the future, so I can clean this information out when it is no longer needed.

So this March, as I'm organizing data for our tax accountant gathering information for charitable contributions should be far less stressful.
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