Individual Tax Issues For Charitable Contributions
In order to be entitled to take a charitable contribution, there are certain rules that you need to follow. This article will discuss some of those rules.
Who Can Receive Tax Deductible Contributions?
Only qualified organizations are eligible to receive tax deductible contributions. Qualified organizations may include:
- Religious Organizations (Includes churches, synagogues, temples, mosques and other religious organizations)
- Federal, state and local governments, if contribution is solely for public purposes
- Nonprofit schools, hospitals and volunteer fire companies
- Public parks and recreation facilities
- Public charities such as Salvation Army, Red Cross, Goodwill Industries, United Way, Boy/Girl Scouts
- War Veteran Groups
Donation to individuals is not tax deductible
To determine if an organization qualifies as a charitable organization for income tax deduction purposes, the IRS as a tax-exempt organization search tool.
Rules for Cash Donations:
In order to take a tax deduction for cash contributions, you are required to have documentation to support the donation. The type of documentation required will depend upon the dollar amount of the donation.
- Documentation for Cash Donations Less Than $250. You cannot deduct any contribution of cash, check, or other monetary gift unless you maintain, as a record of the contribution, a bank record or a written communication from the charity showing its name, plus the date and the amount of the contribution.
- Documentation for Cash Donations $250 or More. If the value of any gift equals $250 or more, you also need a contemporaneous written acknowledgement from the charity stating the amount of any donation made by cash (or check); a description of any property other than cash; and a statement of whether the charity provided any goods or services in exchange for the gift and, if so, a description and a good faith estimate of the value.
- Contributions that benefit the Taxpayer-Contributions. Donations that are made partly for goods or services provided by the organization are deductible if the payment exceeds the fair market value of goods and services received and the donor intends to make a payment in excess of the fair market value of goods and services.
Rules for Non-Cash Donations:
Valuation of non-cash contributions.
You are only entitled to deduct the fair market value of non-cash items that you donate to qualified organizations. Determining fair market value is a tricky thing. For IRS purposes, it means the amount that a “willing buyer would pay, and a willing seller would accept for the property, when neither property is compelled to buy or sell, and both parties have reasonable knowledge of the relevant facts”.
The most commonly donated property items are clothing and household items. To prevent taxpayers’ abuses, the IRS has the following rules:
- Donated clothing or household items must be in “good used condition or better”
- Use online valuation guides to determine fair market value such as the Salvation Army or Goodwill.
- Gather evidence of the price of similar items.
Documentation Required For Non-Cash Donations
Non-Cash Donations Valued Less Than $500. You need a receipt and a record showing the charity's name and a description of the gift.
Noncash Contributions Greater Than $500 The general rules for noncash contributions are the following:
- For contributions of $500 to $5,000, the donor must attach a description of the donated property to the tax return
- For contributions of $5,000 to $500,000, the donor must attach a "qualified appraisal" to the tax return, along with additional information about the property and the appraisal
- For contributions of more than $500,000, the donor must attach a qualified appraisal to the return
Additional rules apply for contributions of motor vehicles, boats, and airplanes if the donation's claimed value exceeds $500.
If you have any questions about deducting charitable contributions on your tax return, please feel free to reach out to us.