Deducting Charitable Contributions: Good News for Good Samaritan 


    Eligible Charitable Organizations

    Deducting Cash Contributions

    Deducting Gifts of Property

    The Most Personal Contribution: Time

    Recordkeeping Requirements

    A Final Tip

     

    Please note that this discussion provides a broad general overview of the relatively complex rules for deducting charitable contributions and is not intended to provide you with specific advice. Everyone's personal and financial situation is unique. It is important that you consult a professional financial adviser such as a CPA financial planner to advise you on the latest developments in this field or if you have specific questions or need advice on deducting for charitable gifts.

     

    If you belong to the large group of Americans who donate time, cash, and property to charitable organizations, there is good news for you. As long as you itemize on your tax return, you can take a deduction for your generosity.  

    Eligible Charitable Organizations
    To ensure deductibility, make sure your planned gifts are to organizations that are qualified to receive tax-deductible contributions. Not all tax-exempt organizations are so qualified. In general, you may deduct donations to domestic nonprofit organizations or foundations operated exclusively for the following purposes:

    • Religious. Includes dues or other financial support of churches, synagogues, and other religious institutions; assessments; payments for pew rents, etc.
    • Charitable. Includes support of organizations such as Boy Scouts, Girl Scouts, American Red Cross, community funds, cancer societies, CARE, Salvation Army, and YMCA/YWCA.
    • Scientific, literary, and educational. These organizations might include hospitals, research organizations, colleges, universities, and associations established for such purposes as education, combating crime, or aiding public welfare.
    • Prevention of cruelty to children or animals.
    • Fostering amateur sports competition.

    Other eligible groups include nonprofit veterans' organizations and also many federal, state, and local government agencies, as long as your gift is for public purposes.

    If you are in doubt about a particular organization, you can ask a CPA financial planner about its tax status or refer to IRS Publication 78, Cumulative List of Organizations.

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    Deducting Cash Contributions

    Cash contributions are the mainstay of most charitable organizations. One thing you don't have to worry about is giving too much. Each year you can generally deduct cash contributions of up to 50 percent of your adjusted gross income provided they are to qualified organizations.

    Quid pro quo contributions. Payments made partly as a contribution and partly in consideration for goods or services furnished to the donor by the charity are not fully deductible. For example, if you buy a $100 concert ticket for a charity fund-raiser and the equivalent ticket normally costs $40, you may deduct only $60. If you choose not to attend the event and return the ticket to the charity to be resold, however, you may deduct the full $100.

    If your quid pro quo contribution is more than $75, as in the example above, the charitable organization must give you a written disclosure statement that includes a good-faith estimate of the value of the goods or services you received. This disclosure can be furnished as part of either the charity's solicitation (on an invitation to a fund-raiser, for example) or in its acknowledgment of the contribution.

    If the contribution is $75 or less, it is up to you to determine the fair market value of whatever you receive from the charitable organization. Also, no disclosure statement is required if you receive intangible religious benefits or items of insubstantial value, since there is no quid pro quo. The IRS guidelines for determining insubstantial value are adjusted each year for inflation.

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    Deducting Gifts of Property
    If you don't have cash to spare, you still can make a charitable contribution. An old computer, a desk gathering dust in the basement, or any other infrequently used items can be the ideal donation and provide a tax deduction.

    The amount of your deduction will depend on a variety of factors, including:

    • The type of property donated
    • The value of the property
    • How long you owned or held it
    • The nature of the charitable organization
    • Whether the charity's intended use of the property relates to the group's tax-exempt purpose

    Valuation. To determine your deduction, you must first establish the fair market value of the donated property. You might, for example, check the price of comparable items at a thrift shop. Many organizations provide a list with a suggested range for items they frequently receive. More unique items might require an appraisal to substantiate the amount of the deduction.

    Deductible contributions of property generally cannot exceed 30 percent of your adjusted gross income.

    Reporting rules. Whenever the amount of your deduction for all noncash gifts is more than $500, you must complete Form 8283, Noncash Charitable Contributions , and attach it to your tax return. When you donate personal property valued in excess of $5,000 for example, artwork or collectibles you are required to obtain an appraisal from a qualified, independent professional no earlier than 60 days preceding the date of the contribution. The appraiser must sign and date Form 8283. Be sure to keep a copy of the detailed appraisal summary for your records.

    Investment property. Donating property that has increased in value can maximize the tax savings from charitable contributions. In many cases, you may be able to deduct the fair market value of the property without paying income tax on the appreciation. If the property you contribute would not produce a long-term capital gain if sold on the open market, your deduction is limited to what the property cost you. For investment property that has declined in value, it is often more beneficial to first sell the property and then donate the cash proceeds. This allows you to take advantage of both capital loss and charitable donation deductions.

    The rules for deducting contributions of investment property are complex. You should consult a professional financial adviser, such as a CPA financial planner, if you are considering donating such property.

     

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    The Most Personal Contribution: Time
    The most personal gift you can make to any organization is your time. Although you may not deduct the value of volunteered time or services, you are allowed to deduct related, un-reimbursed out-of-pocket expenses, such as phone calls, postage, travel, and stationery.

    If you use your car to travel to and from your volunteer commitments, you can deduct actual operating costs or a flat rate of 14 cents per mile. You can also deduct parking and tolls.

    In situations where your volunteer activities require you to travel for example, if you represent your charity at a national meeting you may be able to deduct 100 percent of your un-reimbursed transportation and lodging costs, and 50 percent of the amount you spend on meals, as long as there is no "significant" element of personal pleasure, recreation, or vacation to your trip.

    Incidental expenses may also be deducted. For example, you may be able to deduct the cost of decorations for a nursing home recreation area or the costs of buying and cleaning a uniform required and used exclusively in serving the organization.

    Out-of-pocket expenses such as these are considered cash contributions and should be entered as such on your tax return. Be sure to keep receipts and records.

     

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    Recordkeeping Requirements
    To ensure the deductibility of your contribution, you must have the appropriate documentation to substantiate the amount of your donation. The tax law has specific record keeping rules for documenting your charitable deductions.

    Donations of less than $250 —Required documentation includes a canceled check, receipt from the charitable organization showing its name and the amount and date of the contribution, or other records containing this information.

    Donations of $250 or more —You may not rely solely on a canceled check but must obtain written substantiation for every separate cash donation of $250 or more. The written acknowledgment must include the amount of the contribution (or a description of donated property), along with a description and good-faith estimate of the value of any goods or services you received. This documentation is needed before filing your return.

     

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    A Final Tip
    If you generally itemize on your tax return only every other year or so, consider "bunching" your contributions into alternate years. Donating more than usual in the years when you think you'll be able to itemize could save you money when you file your tax return.

    If you are among those who donate time, cash, and property to charity, you probably do so for personal satisfaction and other intangible benefits. However, it's in your best interest to know and take advantage of the tax benefits as well. A professional financial adviser, such as a CPA financial planner, can answer your questions about charitable giving or help you develop a strategy for charitable giving.

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