Charitable Donations and Your Tax Return

This is the time of year some start to think about making a charitable contribution to a qualified charity.  Here are some tips that you can use all year long that will help you ensure that gift is tax deductible.

Let's first discuss the topic of financial gifts.  In order to deduct the gift you must itemize your deductions.  The gift generally must be documented by a bank record or verification from the charity.  The documentation must show the name of the organization, the date of the donation and the amount.  Foreign charities are generally not allowed with the exception of Canada, Mexico and in some cases Israel.  There are contribution limits that apply based on the type of entity, but there is an opportunity for a carryover.  In a previous post related to year end tax planning I covered the topic of IRA to Charity distributions.

The other common form of donation is clothing and household goods.  A donation may only be deducted if the condition of the items are in good used condition or better.  Additionally, the IRS may deny a deduction for goods with minimal monetary value, for example used socks.  An exception may be allowed for a used item in less than good condition if the taxpayer includes a qualified appraisal with the tax return and the value is greater than $500.  Household items include things like furniture, furnishings, electronics, appliances, linens, and other similar items. Food,
paintings, antiques, and other objects of art, jewelry and gems, and collections are excluded from the provision.  Documentation is also important for these non cash donations.  It is your responsibility to determine a reasonable fair market value.  You should also keep track of what was donated, this will be important when you attempt to determine the value.

The last form I want to cover is personal benefit.  A donation of cash or property is deductible only to the extent you received no personal benefit from the donation.  In other words, the fair market value of dinner tickets, YMCA dues, school tuition, raffles, etc. may not be claimed, just the amount in excess of the FMV.  A tax court ruling disallowed a taxpayer's claim that they did not attend the dinner in which they had purchased tickets for, it was disallowed on the basis that forfeiture was not allowed because they purchased the "right to attend".  On the other hand if the tickets are returned to the charity for resale and no refund is given this would most likely be allowed. 

These are only a few examples of tax law related to charitable donations.  If you have more in depth questions there are a variety of IRS publications related to the topic.  You can also direct questions to you tax professional and I'm always happy to help so feel free to contact me as well.