Credit cards quickly fund charities, deliver tax deduction
Need a last-minute tax break? Charge a charitable gift
By Ben Woolsey and Kelly Dilworth
The end of the year is the time to consider wrapping up your charitable donations to qualify for the current year's tax deduction, and there's no quicker way to donate than with a credit card.
"Outright gifts of cash (which includes gifts made by check, credit card or payroll deductions) are the easiest," say tax experts at the accounting firm Grant Thornton in the company's 2012 Year End Tax Guide. "The key is to make sure you substantiate them. Cash donations under $250 must be supported by a canceled check, credit card receipt or written communication from the charity. Cash donations of $250 or more must be substantiated by the charity."
For the purposes of your return, the Internal Revenue Service considers credit card donations the same as cash contributions, which are the simplest deductions to claim on your return. You may save more in taxes by donating property instead, but the rules for donating property -- and claiming it on your return -- are more complicated.
According to Grant Thornton, if you contribute to charities by check, those donations can be deducted in the year they are mailed. Contributions by credit card are valid the year the charge happened, and pledges cannot be deducted until the payment is accepted. So if you forget to drop a check in the mail until after the New Year, you'll lose the deduction for 365 days.
Cash back for your kindness?
If your tax situation, and your heart, dictate that you want to donate this year, most charitable agencies large and small heartily accept credit card donations. Large charities such as the United Way have dramatically expanded their humanitarian reach by letting supporters make pledges through one-time or monthly payments charged directly to a credit card. Even the Salvation Army accepts credit card gifts.
Depending on the type of card, you can also earn airline miles, cash back and other credit card rewards that you can either enjoy yourself or donate to family, friends or a charity. Airline miles are typically not considered tax deductible, but cash-back donations are, says the IRS.
You can also use your regular card to donate to a variety of charities, but some issuers have created credit cards to support specific charitable organizations.
Cause credit cards automatically donate a portion of each transaction to the charity linked to the card. Some are branded with the organization, like Bank of America's Susan G. Komen for the Cure Breast Cancer Awareness credit card and its World Wildlife Fund card; others allow you to steer the donation to the cause of your choice. You can support your child's public school through Target's REDcard Take Charge of Education program or split the money between up to five Israel-related charities through the HAS Advantage Visa Platinum card.
One important warning about credit cards and charities: If you notice a small charge on your credit card statement from a charity that you do not remember donating to, it should be a red flag. Sometimes when scammers steal someone's credit card numbers, they will donate a dollar to charities using the card to make sure that the card is still valid. They hope cardholders will shrug off the charge and not question its origin. If you see that type of charge on your bill, it is a sign that your credit card number could be in the wrong hands. If that's the case, call the issuer immediately and cut off the thief's access to your money. You may be charitable, but probably you aren't that charitable.
Still in the mood to give? Good. See the IRS's "Tax Information for Contributors" page for details on whether and how your good deed qualifies for a tax deduction.
Updated: December 27, 2013
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