Charitable donation by credit card gives quick tax deduction

By Ben Woolsey and 

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 2015 Year End Tax Guide. The key is to make sure you substantiate them. "Cash donations of $250 or more must be substantiated by the charity. Under $250, a canceled check or credit card receipt is sufficient.

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.  

credit cards and charitable giving

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. That makes cards ideal for last-minute donations: If you're away from stamps but near your wallet and a computer, you can make a donation by credit card.

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 and small have expanded their humanitarian reach by letting supporters make pledges through one-time or monthly payments charged directly to a credit card.

Depending on the type of card, you can also earn airline miles, cash back and other rewards that you can either enjoy yourself or donate to family, friends or a charity. Donations of 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.

Finally, some credit cards have set up onlline portals that encourage you to  give to charity.  Capital One's No Hassle Giving, Discover Giving and American Express' Members Give all let you select from a vetted group of charities and then make a quick donation. If you donate through Capital One's site, it absorbs the transaction fee so 100 percent of your donation goes to the charity. Discover and American Express use a third party, JustGive, to process donations, and deduct a 2.25 percent transaction fee from the donation.

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. The dollar donation fraud works like this: When scammers steal someone's credit card numbers, they will donate $1 to a charity via the card to make sure that it 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.

See related: Credit cards' own charity networks can save on taxes, How the IRS treats frequent flier credit card rewards

Updated: December 30, 2015

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