Your Money: Verify charity to claim tax deduction

Panic-stricken during tax time, many Americans dig out receipts for last year's charitable donations before filing by April 15 - only to discover the charity they gave serious money to either was a scam or wasn't eligible for a tax-deductible gift.

If you're like me - meaning you routinely file your tax returns at the last minute - you can save yourself from being duped by a charitable donation gone awry.

The American Red Cross and Goodwill are just two examples of well-known tax-exempt charities approved by the Internal Revenue Service. To claim federal income tax deductions for contributions to such organizations, you generally need written receipts for cash contributions of $250 or more. For contributions of less than $250 made by check or credit card, keep the canceled check or credit card statement to satisfy the IRS.

But what about verifying tax deductions for contributions to less well-known charities? Good question, says Martin Abo, a certified public accountant with offices in Mount Laurel and Morrisville.

He suggests we head to the IRS website (www.irs.gov) and search for "Publication 78."

Abo says he is advising clients to do the following to be sure the charity or organization is legitimate: Once you have found Publication 78, click on "Exempt Organizations Select Check." Then click on the blue "Exempt Organizations Select Check Toolbox."

Under "Limit Search to Organizations That (select only one)," call up "Are Eligible to Receive Tax-Deductible Contributions."

To the extent you have information, fill in the blanks for the charity, such as name, and city and state where it is located. Hit the search key.

Once you find the charity you are searching for, click on the "Deductibility Status" link on the far right.

For example if that status says "PC," the organization is a public charity (the most common kind). You can make deductible donations of up to 50 percent of your adjusted gross income (AGI) to one or more public charity.

If the status is "PF," the organization is a private foundation. You can make deductible contributions of up to 30 percent of your AGI to one or more private foundations. If the organization's status is "SOUNK," the outfit is a supporting organization of an unknown type. You can make deductible contributions of up to 50 percent of AGI to such organizations.

For instance, I did a search for an organization that promotes education of women in finance, called 100 Women in Hedge Funds. I searched for its foundation by name, and came up with its identification number and listing on the IRS website as a public charity (donation is 50 percent deductible).

What if your charity is not on the IRS-approved list?

That is not necessarily a deal-breaker. Sometimes religious groups, such as churches, synagogues or mosques, aren't required to apply as tax-exempt organizations with the IRS.

But you want to be certain. One way is to find out if your charity has had its tax-exempt status revoked.

On the IRS website, go back to the blue "Exempt Organizations Select Check Tool" page and select "Were Automatically Revoked."

Fill in the blanks to the extent you know the requested information for the organization and hit the search key. For instance, we did a search under Philadelphia between Jan. 1 and April 9, 2013, and found that Sigma Alpha Epsilon Fraternity at 3210 Chestnut had its 501(c)(7) status revoked in March for failing to file the required paperwork for the last three years.

A tax write-off can make you feel good about supporting charities. But don't be naive in the process.