And it's not just families that have felt the sting of the downturn. Through October, more than a third of charities reported that contributions decreased during the first nine months of this year, vs. the year-ago period.
But even during tough times, many Americans still give. And at times like these, it's important to get the most out of your charitable contributions. That means getting the most out of charitable tax breaks. Some tips:
•Don't donate stocks or mutual funds that have declined in value.
Donating stocks and mutual funds that have gained in value is a smart move. You avoid taxes on your capital gains, and you get to deduct the full market value of your donation.
But if you're like most of us, there are so many dogs in your portfolio, you hear barking every time your statement arrives in the mail. If you were planning to dump those canines anyway, does it make sense to donate them to a charity instead?
In a word, no. When you donate securities that have declined in value, you give up the tax benefits of selling them at a loss. A better strategy, says Justin Ransome, a partner with Grant Thornton's National Tax Office, is to sell your securities and donate the proceeds to charity.
That way, Ransome says, you can use the losses to offset any capital gains you've racked up this year. And if you don't have any gains to offset, you can deduct up to $3,000 in losses from your 2008 income. Losses that exceed that amount can be carried over to future years.
•If you are 70½ or older, consider making charitable contributions directly from your individual retirement account.
This tax break, which Congress recently extended through 2009, allows seniors to take tax-free withdrawals from their IRAs, as long as the money goes directly to a qualified charity.
The contributions aren't deductible, but the money won't be included in your taxable income for the year, says Mark Joseph, a financial planner in Reston, Va.
That could be particularly useful for retirees who have paid off their mortgages and don't have enough deductions to itemize, Joseph says. Giving away money that would otherwise be taxed, "is kind of a back door way to get a deduction," says.
To qualify for the tax break, your IRA withdrawal must go directly to a qualified charity. The maximum you can contribute: $100,000 a year.
The withdrawal counts against your required minimum distributions for the year. IRA owners who are 70½ or older are required to withdraw a minimum amount every year and pay taxes on the money, whether they need the money or not. The withdrawal is based on the value of the IRA at the end of the previous year.
This year, the RMD requirement is creating considerable consternation among seniors who have seen their IRAs bludgeoned by the bear market. Lawmakers have discussed suspending the requirement for 2008. There are also regulatory steps Treasury could take to address the issue, says Clint Stretch, managing principal for tax policy at Deloitte Tax. A Treasury spokesman said the department is looking into the issue.
If you haven't already taken your RMD, Stretch recommends waiting until mid-December to take your distribution, just in case Congress or Treasury decides to provide relief.
But don't wait too long, because you don't want to miss the Dec. 31 deadline. Barring any change in the rules, the penalty for failing to take your RMD is 50% of the amount that you should have withdrawn.
•Make sure you give to a qualified charity.
Did you contribute to a political candidate this year? That may have made you feel good — especially if your candidate won — but it won't lower your taxes, Ransome says. Donations to political parties, political campaigns or political action committees aren't tax-deductible.
The IRS publishes an annual list of organizations eligible to receive tax-deductible contributions. (Go towww.irs.gov and search for IRS Publication 78.)
Keep in mind, though, that many churches, synagogues and other religious organizations that aren't on the list are also qualified to receive tax-deductible donations.
Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click herefor an index of Your Money columns. E-mail her at: sblock@usatoday.com.
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