FIVE CLEVER WAYS THAT YOU CAN HELP A CHARITY AND LOWER YOUR TAX BILL TOO
By MARY L.SPROUSE

(MONEY Magazine) – 'TIS THE SEASON TO GIVE TO YOUR FAVORITE charity. Problem is, 'tis also the season to give to the mail carrier, your nieces and nephews and perhaps your doorman--which might mean you're a little short of cash. The good news: There are five clever ways you can give to charity--often without coming up with cash--and still get a 1995 tax deduction. (To learn how a charitable donation can earn you an income for life, see the story in Money Newsline on page 18.)

Regardless of the type of donation you make, remember to keep scrupulous records. Since 1994, the IRS has required you to get a receipt from the charity for any individual donations you make that are worth more than $250. The charity must also estimate the value of any goods or services that you received in exchange for your donation, such as a meal or discounted fare on a trip. For donations in excess of $75, the charity must now tell you how much of the contribution is deductible.

Now, here are ways you can help the needy and aid yourself at tax time too:

Buy a benefit ticket--but don't take it. If you pay $75 to attend a charity banquet, don't expect much of a write-off. That's because you get a meal that may be worth nearly the price of the ticket. For instance, if the dinner is worth $70, you can write off only $5. But there's still a way to turn the entire cost of the benefit ticket into a tax deduction: Buy a ticket and tell the charity to give it to someone else. Keep this in mind for those times you commit yourself to a charitable dinner only to get called out of town a few days before the big night. As long as you return the ticket to the charity ahead of time, you can write off the entire amount, because you've given away your right to attend.

Contribute to a charity auction. Here's a tax-saving idea you may not have considered: Donate a painting, furniture or any other valuable object you own to a charity looking for items to auction off. Careful, though: When you give something to an auction you can deduct only the lesser of the fair market value (as determined by the auction price) or what you paid. It's always best to have the original receipt or a duplicate. Your next best bet is to call the place of purchase and ask for a written estimate of what the item cost when you bought it.

Give away appreciated assets. This year's 25% run-up in stock prices has left many investors feeling jolly. If you're one of the fortunate ones, think about giving a charity some of your appreciated stock instead of cash. You can deduct the full current market value of the stock, provided you've owned the shares for more than one year. (If you've held the stocks for less than a year, you can deduct only the purchase price.) This way you owe less in tax and can make a bigger gift than if you sell the shares, pay the capital-gains tax and then give the proceeds to charity.

For example, assume you own 100 shares of stock that cost you $20 a share and now sell for $50 a share. If you sell your $5,000 worth of stock and then contribute the equivalent amount of cash, you'll end up with a federal tax savings of $560, assuming you're in the 28% bracket. That's because while you can claim a $1,400 write-off for making the $5,000 cash donation ($5,000 times 0.28), you must also pay $840 in tax on the $3,000 profit you made, reducing your tax savings ($1,400 minus $840 equals $560). But if you give the charity the shares outright, you owe no capital-gains tax and get the full $1,400 deduction.

If you claim a deduction for securities or other property valued at more than $500, you must attach Form 8283 to your return, however. And for property worth more than $5,000, someone from the charity must acknowledge receipt of the gift by actually signing Form 8283. Unlike other property donations, though, you won't need an expert written appraisal for donations of publicly traded securities, nor for nonpublicly traded securities valued at $10,000 or less.

Donate your old car. You can turn your car's trade-in value into tax dollars by having a charity like the Salvation Army, Goodwill or a nonprofit school or college take it off your hands. If the car is in fair condition for its age, use the Blue Book price guides at your bank or a used-car dealership to gauge its deductible value. If your car is a wreck, though, the size of your deduction will probably be closer to its scrap value. You can find out what that is by getting estimates from a couple of local junkyards and auto-parts yards. If the value of your car exceeds $5,000, an appraiser must complete Part III in Section B of Form 8283.

Give borrowed money. If you don't have property or surplus cash to donate, Uncle Sam might help. In a private-letter ruling in 1995, the IRS allowed a household to get a tax break for borrowed money used to make a no-interest loan to a charity. This is how the strategy works: Suppose you borrow $3,000 from a bank to make such a loan. You'll be taxed on the interest you could have charged the charity (based on rates tied to what the government pays for short-term loans at that time--today around 5.9%). But you can deduct the amount you pay in tax as a charitable contribution, so it's a wash. In addition, you can claim the interest you paid the bank on Schedule A as an itemized deduction, so long as it does not exceed your total investment income. Should you ultimately decide to forgive the loan to the charity, you can write off the whole amount as a charitable deduction. Be advised, however, that a private-letter ruling isn't as binding as a law, so check with your tax adviser before using this strategy.

Mary Sprouse is the author of The MONEY 1995 Income Tax Handbook (Warner Books, $13.99).