Its tax time and many are looking around to see what charitable donations they have made that can be deducted against their income tax. While it can be tempting to do some creative calculations here, be careful. The rules about what can be deducted and how much get stricter every year. Getting caught is going to cost far more than the deduction.

Below are a few things to keep in mind as you list your deductions:

Is the charity recognized by the IRS? If not, you can’t deduct your gift. How can you make sure?Ask for their Tax ID number, check the IRS website: to check the status of a charity, use the IRS Select Check tool.

You have to list and itemize the gifts and the deductions you take. There is no single line item or box you can check, so be sure to keep ALL  your receipts. Itemized deductions are listed on Schedule A and are part of the big 1040 return, not the shorter ones.

Fair Market Value:

Deductions are net, not gross. If you buy a ticket to a charity dinner for $250, and the cost, the Fair Market Value, of the dinner is $100,  your deduction is therefore $150.

Silent auction items:

Most silent auction purchases are a bargain. Same principle applies here: if you buy a gift certificate valued at $100, and only pay $80 for it, there is no deduction.  However, if you pay $120 for it, $20 of that is a legitimate deduction. ( Keep everything! Be prepared to back up your claim).

Other Benefits:

If you get any other benefit from your donation, say tickets to an event, the same rule applies, you may only deduct what you gave in excess of the value of what you receive.

Donations of Stuff: In-Kind Donations

If you donate material goods, clothes, furniture and other things, you, as the donor, are required to place a value on the  item(s).The nonprofit must  acknowledge the receipt of the items and you determine its ‘value’. Value is defined as what that item would fetch on the open market.

Be careful in how generously you value your donations, don’t inflate the amount ridiculously. The resale market for most goods is brutal, expensive things can be worth a fraction of their cost. Often painfully so. 

**** Click here for the IRS publication: How to Value Your Donations.  

This is what has happened with donations of art and cars which has resulted in very strict rules of appraisals and documentation for very high ticket item gifts.  If you have something like this in mind, do check with a tax pro first.

If the total value of your in kind gifts is greater than $500,  you will need to include  File Form 8283, Non cash Charitable Contributions.

  • Complete section-A for non-cash property contributions worth $5,000 or less.
  • Complete section-B for non-cash property contributions more than $5,000 and include a qualified appraisal to the return.

The type of records that must be kept depends on the amount and type of the donation, err on the side of caution and keep everything. To learn more, see Publication 526, Charitable Contributions. 

Donations of $250 or More.

If you give funds over $250, you need to have a written receipt statement from the nonprofit.

There are 6 things the receipt must contain:

  1. Name of the Charity
  2. Physical Address
  3. It must be timely: in other words, the receipt must be received before the date of the tax filing, or the return due date ( including extensions).
  4. The date of the gift: you can also use cancelled checks or bank/credit card statements to show the date.
  5. The specific nature of the gift: cash, stocks, stuff? ( If cash, it has to have the exact amount. If it is goods or services, the value of those goods or services (determined by the donor).
  6. At statement on whether any goods or services were provided as an exchange for this gift. This information needs to be explicit on the receipt. Usually this is a sentence added to the acknowledgement letter.*

*When a charity provides something to the donor, information regarding the value of the goods or services provided should be included on the receipt. This is often called “quid pro quo”. Disclosure to the donor is required when the donor makes a donation of more than $75. Donations for $75 or less are generally excluded from this reporting. However, as a best practice charities may want to do so anyway. Items of insignificant value, a hat, logo pen or newsletter, are not required to be reported as exchanges. 

Bottom Line: 

Giving, donations, contributions, no matter what it is called, it is a wonderful thing. Protect your gift and your peace of mind by making sure you obtain all the right paperwork and records. Hopefully you won’t need to show them, but if you ever have to, you will be very glad you did.

Thanks for giving.