November 7, 2013

It’s that time of year again, when the spirit of the season inspires charitable giving. Of course, you make charitable donations because you want to benefit those less fortunate. But if you can get a tax deduction too, why not? But be careful–some charitable donations are NOT tax deductible. And for those that are, you must follow the correct procedures or risk having the Internal Revenue Service disallow your deduction.

What which charitable donations are tax deductible? Read on.

The Recipient Is Important

If you make a donation to a particular political cause or individual candidate, you may feel good inside, but the IRS will not allow you to claim a charitable deduction. That’s because gifts to political and lobbying organizations, individuals or candidates running for public office are not tax deductible. You also cannot claim a charitable deduction for donations made for church raffles, bingo games or gifts made with the expectation of receiving a financial benefit.

Fundraising dinners and similar events are tricky. You might have noticed that organizations frequently include a small print notification that $X of your donation may be counted as a charitable deduction, where $X is an amount smaller than the actual price of the event. That’s because you can only claim a deduction for the amount you donate over and above the value the dinner or entertainment event that charities offer to entice attendees to fundraising events.

You Can Only Give So Much

If you’re feeling especially charitable, you may decide to give away 90 percent of your income to your local church and take a vow of poverty. While your ambitions may be admirable, don’t expect to write off your entire donation. The IRS limits deductions to public charities, institutions of higher education and religious organizations to 50 percent of your adjusted gross income (AGI). Limits are lower for gifts to other types of charitable institutions.

However, if you make a large gift that exceeds your AGI limit for one year, you can carry over the excess deduction for the following year, provided that your donations for that year do not exceed your AGI limits.

Giving Your Time

If you’re a doctor working six hours per week in a free clinic, you may draw satisfaction from the fact that you are improving, and maybe even saving people’s lives. However, you cannot deduct the value of your work hours at the clinic on your federal income tax returns. On the other hand, all that money you spent on equipment used for your charitable work, parking and bus fare to and from the site where you performed your work is a legitimate tax deduction. And if you drive your car to and from your volunteer work site, you can deduct 14 cents per mile on your federal income tax return for each round trip.

Non-Cash Contributions

You’ve lost weight and bought a whole new wardrobe. As an incentive to keep off the weight, you want to give away all your “fat” clothes. Before you pack up your old jeans, dresses and sweaters, take an objective appraisal their condition. If your clothing could be classified as being in “good” condition or better, your donation to your local Goodwill or Salvation Army can be claimed as a charitable deduction. However, you must obtain a receipt stating the name of the charity, a general description of your donation, the date of the donation and the fair market value of the donated items.

But don’t expect to include the “value” of your underwear and socks, even if they’re laundered. And that ratty sweatshirt you’ve had since college is likely not to be deductible either. Items in less-than-good condition can only be claimed as charitable deductions if the items are valued at more than $500 AND you obtain an appraisal for each item, which you must attach to your federal income tax return. If you decide to give away your Aunt Mildred’s graduated pearl necklace which has been appraised at $1500, you will need to complete Form 8283 and attach it to your return. The form includes spaces for the description of each item that was donated, the charity to which you made the donation and the value of each donated item.

The Special Case of Cars

In Notice 2005-44 the IRS outlines the circumstances, listed below, under which you may deduct the fair market value of a vehicle donated to an eligible charitable institution:

  • The charity actively uses the vehicle, such as using it to deliver meals to seniors or books for shut-ins.
  • The charity makes substantial improvements to the vehicle, not just cleaning and painting, e.g repairing the transmission.
  • The charity donates or sells the vehicle at a deeply discounted price to a needy individual or family as part of its mission of helping poor people obtain reliable transportation.

Keep Your Receipts

The importance of obtaining and retaining written documentation of your charitable donations cannot be overstated. No matter how large or small, you must be able to document your gift, or the IRS will disallow it. However, the documentation allowed by the IRS is fairly liberal. As long as the name of the organization, a general description of the donation, the date and the amount of your donation are included, you’re generally OK.

For instance, copies of cancelled checks are fine for cash donations valued under $250. And if you donated $10 to victims of the Oklahoma tornadoes to the Red Cross by text message on your cell phone, you can print out a copy of your phone bill that includes your donation as documentation to include with your federal income tax return.

Perfect Timing

In nearly all cases, you claim charitable deductions in the same year that donations are made. You may make a donation as late as December 31 and count the deduction on this year’s tax returns. If you make a donation by credit card, you can still claim the donation this year, even if the bill for your donation is not generated until after January 1. As 2014 is fast approaching, making charitable donations now, not later can be a very savvy move.

Photo: Silicon Prairie News