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By Jason Stipp | 12-22-2010 01:47 PM

Guidelines for Giving

Morningstar's Christine Benz explains how to maximize the benefits of donations for your given cause and your tax bill.

Jason Stipp: I'm Jason Stipp for Morningstar.

If you are in the giving mood this holiday season, you should know that charity gifting can do more than just give you that nice feeling inside. Here with me to offer some details is Morningstar's Christine Benz, director of personal finance.

Thanks for joining me Christine.

Christine Benz: Jason, great to be here.

Stipp: So giving for the sake of giving is a great thing, but there is also some benefits to giving to charity for your portfolio. Can you outline some of those?

Benz: Well, one of the key ones, Jason, is that assuming you give to a qualified charity, you'll be able to receive a tax deduction on your contribution, so that's a big plus. And then if you are gifting highly appreciated securities, so securities that have gone up a lot since you've purchased them, you will be able to not just receive the tax deduction but also not have to pay taxes on that appreciation. So that's a big plus.

And finally, if you are making a charity the beneficiary of your IRA, the big advantage there is that when the charity receives that donation from you, it will not owe taxes, whereas your heirs probably would, and they may be taxed at a very onerous rate. So a couple of big benefits right there for charitable givers.

Stipp: Gifting can really gives you back in the form of some tax savings.

But there are some rules that you have to keep in mind about gifting, and you mentioned making sure the charity is one that is allowed. Can you give some more details on that, and also some of the other things you really need to keep in mind as you're giving to charity?

Benz: Right, so first check up on whether that charitable contribution is deductable, and the IRS has a form that it updates quarterly, its IRS Publication 78. Just check up and make sure that that charity is eligible. The key rule of thumb is that political contributions are not deductible. Donations to individuals are not deductible. And finally, even though donating time can be really valuable, that's not deductible on your tax return.

The other thing to keep in mind, Jason, is making sure that you have the right documentation when you are making those deductions. So, first of all, you need to be an itemizer; you need to be someone who itemizes deductions on your taxes. But also you need to save receipts; you need to save canceled check. And then if you are gifting property, so actual stuff versus cash or securities, you need to have some additional forms of documentation, particularly if there is a high dollar amount attached to that property. So, check with a tax person to make sure that you're really minding your P's and Q's when you're trying to deduct those kinds of things.

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