In order to keep tax-deductible donations from being abused, the IRS cracks down hard on the rules and regulations to qualify for a donation deduction. Make sure that you and your clients are up to date on these requirements so you are not in for a surprise come tax time.
Everyone gets a standard deduction amount to contribute to the charities the IRS deems qualified. The standard deduction varies and changes each year, so check it for the year you’re filing taxes. If your client’s donation amount in a year exceeds this standard amount, this is when you need to pay attention to the red tape and make sure that the write off will be available.
The red tape
In order to deduct the contribution on their income tax return your client must itemize their deductions and fill out the appropriate Form 1040. Your client must also be sure that payment (check in the mail or charge shows on credit card) is made by December 31 of the year that they would like to file the deduction for.
For any contribution less $250 a cancelled check or a bank record will do for proof of contribution. Remind your clients that they cannot deduct casual donations that dropped into a charity’s collection box or bucket without a receipt.
To be 100 percent sure that the donation is being made to a charitable organizations that qualifies for tax-deductible donations, be sure to check their 501(c)(3) designation.
The following types of organizations qualify for a deduction:
- Churches, synagogues, temples, mosques and other religious organizations.
- Federal, state and local governments, if your contribution is used for public purposes.
- Nonprofit schools and hospitals.
- Public parks and recreation facilities.
- Salvation Army, Red Cross, CARE, Goodwill, United Way, Boy and Girl Scouts, etc.
- War veterans’ groups.
- Expenses paid for a student living with you, sponsored by a qualified organization.
The types of organizations below do not qualify for a charitable deduction:
- Civic leagues, social and sports clubs, labor unions and chambers of commerce.
- Foreign organizations (except certain Canadian, Israeli and Mexican charities).
- For-profit organizations.
- Lobbying or lawmaking organizations.
- Lottery, bingo or raffle tickets.
- Dues, fees or bills paid to social or recreational clubs.
- Homeowners’ associations.
- Individuals, political groups or candidates for public office.
You can get a tax deduction for non-cash contributions such as property, outdated clothing, household furnishings or office equipment. Donated goods must be in what the IRS deems ‘good condition or better’ and you must have a receipt for the goods from the charity to claim a deduction. If you donate non-cash items with a total value of more than $500, you must file IRS Form 8283 with your return. You may need a qualified appraisal if you donate an item or a group of items with a value of more than $5,000.
As far as tax deductions, time spent volunteering for a charitable organization cannot be deducted. However, you can deduct your out-of-pocket expenses including your travel to volunteer abroad or even in another state.
If your client has received any kind of goods in exchange for their donation, whether that be a thank you tote bag or a gala dinner – they must subtract the value of the goods from the donation amount that you list as their tax deduction. Say the gala dinner tickets were $100 and the actual meal is valued at $25, the tax write-off amount would equal $75.
There are limits to how much certain individuals can deduct as charitable donations and you will need to discuss this with your client in regards to their income amount. The important thing is that the client concentrates on making a difference and giving to charities that are important to them, it doesn’t hurt of course to get a bit more on their tax return while they are at it.
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