While some hit the stores the day after Thanksgiving, Justine Lackey, president of Briarcliff Manor, N.Y.-based Good Cents Bookkeeping, a money-management firm for entrepreneurs, has another tradition.
"During the year, I put the charity solicitations I receive in a folder, and after Thanksgiving I review them and decide which organizations I want to support," says Lackey. "This way, I make sure I’m giving appropriately, and bearing the bottom line in mind."
With tax laws likely changing soon, it’s a good idea to follow Lackey’s lead and donate before the end of the year, as one of the proposed revisions for 2013 is a cap on itemized deductions. But before you write a check, here are three things you need to do.
1. Evaluate the organization. Any time you consider making a donation, you should ensure that the organization is legitimate and lives up to its mission.
"It's unfortunate, but with disasters like super storm Sandy, many 'charities' pop up that aren't charities at all, in fact they are scams," says Lackey. "As a business owner, I want to be guided by both my heart and my brain."
To evaluate a charity, visit charitynavigator.org. The website provides information such as financial performance, accountability, revenue, expenses and leadership compensation. It also offers tips for donors on selecting a worthy charity
To ensure that your donation will be deductible, Lackey also recommends verifying a charity’s exemption status with the IRS.
2. Determine how much you should give. Of course, you can give as much as you like, but if you want to take a tax deduction, it’s a good idea to know the rules.
Lackey offers these guidelines -- If you are a sole proprietor, you will claim donations on your itemized personal tax return, and if you are in a partnership or S Corp, you will deduct your share of the donation on your itemized personal tax return.
On a personal return, you can deduct up to 30% to 50% of your adjusted gross income, with the amount depending upon the charity’s IRS category.Organizations such as churches, schools and private-operating foundations fall into the 50% category; veterans' and fraternal societies are in the 30% category. ( click here for a full list ). If your business is a C Corp, you will list deductions on the business’s return and can deduct up to 10% of taxable income.
3. Keep detailed records. Finally, you must keep a paper trail. For cash donations, you will need a bank record, such as a canceled check or written documentation from the charity detailing your contribution. Donations of more than $250, however, require a written record from the organization outlining the amount, date, and whether any goods or services were given in exchange for the donation.
"For example, if you attended a charity ball where tickets were $500, but the value of the entertainment and meal was $125, the organization would outline your donation and your deduction would be $375." says Lackey.
"The rules can be complex. It’s best to invest in a qualified CPA, an enrolled agent certified by the IRS, or a qualified tax preparer who can evaluate your personal situation and make sure you are getting the biggest tax benefit."
Copyright © 2013 Entrepreneur.com, Inc.