Kindness isn’t always deductible. There are several rules that must be understood regarding what constitutes a charitable deduction.
In order for the IRS to recognize a donation as a charitable deduction, the donation must be given to a qualified organization. Some common organizations that qualify are religious organizations, nonprofit schools and hospitals, Salvation Army, Red Cross, Deseret Industries, United Way, war veterans groups and organizations that place exchange students in elementary or secondary school.
However, money or property given to civic leagues, labor unions, groups that run for personal profit, groups whose purpose is to lobby for law changes, homeowner’s associations and individuals are not deductible.
The IRS limits charitable contributions to 50 percent of your adjusted gross income. However, the contribution could be limited to 20 to 30 percent of your adjusted gross income depending on the type of property you give and the type of organization that receives the donation.
The deduction can only be taken in the year that you give it. In addition, if you receive something for your donation, such as a benefit dinner, unless you contributed more than the price of the ticket, the donation is not a deduction. Even if you do not attend the dinner, the cost of the ticket cannot be deducted. However, if you return the ticket to the charity to resell, then you can take the deduction.
The deductions for volunteering to a qualified organization are limited to out-of-pocket expenses. Mileage to the organization or gas and oil, unreimbursed expenses, parking fees and tolls, travel away from home as long as there is no significant element of personal pleasure, recreation or vacation in the travel, and the cost or upkeep of uniforms that you must wear are examples of what can be deducted. You cannot deduct the value of your time to volunteer.
Donations of clothing and household items are allowed only if the items are in good used condition or better. You are required to keep records of your donations. The fair market value should be used to determine the price. Fair market value is the price at which the property would change hands between a willing buyer and a willing seller. The fair market value of used clothing and other personal items is usually far less than the price you paid for them.
Record keeping is critical. Cash contributions can only be deducted if you have one of the following: a bank record, a receipt or letter from the qualified organization, or payroll deduction records. The records must include the name of the organization, the date of the contribution and the amount.
Noncash contributions of less than $250 must have a receipt from the charitable organization. Noncash contributions of not more than $500 must have a written receipt that includes a description of the property, whether the qualified organization gave you any goods or services as a result of the donation, and a description and good-faith estimate of the value.
Noncash contributions more than $500 must include how you got the property, (i.e. purchase, gift, etc.), the approximate date you got the property and the cost of the property.
Noncash contributions more than $5,000 must have a written appraisal.
For more information, visit www.irs.gov and type “charitable donations” in the search engine.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at firstname.lastname@example.org.