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Every year, charitable giving spikes toward the end of December as Americans celebrate the holidays and take advantage of their last opportunity to make a tax-deductible donation in the calendar year.

Credit cards are typically part of this effort in one of two ways: Cardholders may use credit cards as a secure and convenient method of payment, or they may use their rewards to make a donation.

With the convenience of using a credit card for charitable giving, there are also a few drawbacks that cardholders should understand before taking out the plastic.

How to Make Donations With a Credit Card

It is easy to go online and give using a credit card, but how much of what you pay will actually reach the recipient? Unfortunately, up to 5% of the amount charged will go to credit card processing fees, reducing the value of your gift.

Some card issuers will occasionally waive transaction fees in the wake of major natural disasters. Nevertheless, no such waivers were announced after the recent typhoon in the Philippines.

Capital One continuously offers its No Hassle Giving Site that allows cardholders to give to the charity of their choice without imposing merchant fees on the recipient. Using this site, Capital One cardholders can make a donation to more than 1.2 million public charities in the U.S., receiving an immediate receipt via email, and even earn reward points.

Furthermore, Capital One has even decided to match contributions in the wake of the typhoon that recently devastated parts of the Philippines. According to spokeswoman Sukhi Sahni, Capital One “is matching up to $150,000 in contributions made by Capital One credit and debit cardholders to AmeriCares and Operation USA via the No Hassle Giving Site. As usual, we are covering the transaction fees so that 100% of the donations goes to relief efforts, and cardholders can donate cash or rewards.”

If you’re not a Capital One cardholder, check your credit card issuer’s website to see if it works with any charities to provide fee-free giving.

How to Donate Credit Card Rewards

When you charge a donation to a credit card, you have a record of the transaction that you can use for tax purposes. But when cardholders donate their rewards directly to a charity, the situation is more complex. Cash-back rewards donated directly to charity can be deducted just like any other cash donations. However, experts have concluded that the IRS will not allow you to deduct the value of miles or points when donated.

For example, the Make-A-Wish Foundation accepts contributions of airline miles from Delta, United, US Airways and JetBlue. Nevertheless, it advises donors that “the IRS recognizes award points and miles as a gift or an award from the corporation to the individual. Therefore, points and frequent flier miles donated to charity are not considered tax deductible.”

The exception appears to be when a taxpayer has purchased points or miles for the purpose of making a donation. But because such purchases represent a poor value when you look at points per dollar spent, it makes more sense to give your charity of choice a cash donation.

To offer the maximum benefit to a charity, avoid charging donations to your credit card when you can write a check instead.

While several airline, hotel and credit card reward programs offer members the opportunity to donate their points or miles, it’s wise to avoid this option as well. Since you won’t receive a tax deduction, you are better off spending these rewards to offset your own expenses, and then donating the equivalent amount in cash. When the tax deduction is considered, you may be able to give even more. But if you have a small sum of points and miles that are orphaned and are of no value to you, feel free to donate it to your favorite cause, even though you won’t receive a tax deduction.

Credit cards can make it easy to support worthy nonprofits, and smart cardholders can ensure that their donations offer the greatest impact to the recipients while reducing their own tax bills.

Image: Hemera

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