The Feds Want You To be Generous….To A Point
One of the most compelling reasons for some to give is the fact that the gift not only helps the organization or cause, but it also reduces the taxes owed by the donor. This is one way the federal government encourages and supports donations to organizations that are doing valuable and important work for the community.
But giving is not quite so simple and it is important that both donor and recipient know the guidelines and laws according to Uncle Sam.
1. All Donations Must Be Made to IRS-Approved Organizations
Be careful when you choose to give: the IRS only accepts donations made to qualifying organizations; that is those with a 501c3 exemption. The organization should be able to provide a copy of their exemption and/or their tax exempt Federal ID number; you can verify their status online with the Exempt Organization Select Check Tool on the IRS website.
Donations to specific individuals are not tax-deductible.
2. You Can’t Deduct Your Contributions Unless You Itemize
You must itemize your deductions in order to write off your charitable contributions. If you only use the one page and EZ forms, there is no place for a list of contributions and there is no way to find that line item deduction. . If you use an online tax preparation, the program will ask you for the pertinent information to fill in.
If you file with the 1040, there will be a few additional schedules that will have to be included that will need the records of your gifts.
3. Put A Fair Value on Your Non-Cash Donations
Don’t value the old blanket you give to the shelter at $50. Don’t get greedy; the IRS agents shop as well. There are online calculators which can help you establish a value for the goods you donate, but beware, that incredible leather skirt you paid a fortune for may only be worth $7.
Consider what the same piece would sell for at a thrift store. If the piece or pieces you are donating have a high value, obtain an appraisal on paper before you give and deduct. The charity can’t determine this amount; it is the donor’s responsibility. Be sure it is dated, items listed, condition or other remarks and shows your name.
If the total value of the in-kind donations you give is more than $500, there is yet another form to complete and submit with your return, Form 8283. Having the above information makes completing this much easier
4. Maintain Accurate Records, Always, for Everything
IRS rules are that there must be a paper receipt for any donation greater than $250, but it is only smart to obtain a receipt for any financial gift. It must have the name of the organization, the date, amount and your name. You don’ t have to have this kind of record for donations below that amount, but getting a credit card receipt, a cancelled check or other receipt is a good idea to get in any case.
Having these complete and organized records will help you keep track of what you give, as well as support your deductions at tax time. Automatically requiring receipts and notes, and filing them right away when you donate is a great practice.
You can’t deduct your time as a volunteer, regardless of your skill level or the ‘value’ of your time. It doesn’t matter if you normally make $9 per hour or $900, your time is a pure gift. But you can deduct the expenses you incur when you volunteer. Keep track of what it costs you to pay for gas and parking, but be aware these costs are considered deductible at a lower rate than deductible costs such as business or medically related ones.( But, a deduction is a deduction, right?)
5. There Are Limits to What You Can Write Off
This might not apply to as many people, but there are ceilings about how much is ok to deduct and when it is too much. If you have so much that your giving exceeds a certain limit, as it approaches 50% of your gross income, it may be better for you to establish your own foundation. And those have tax issues all of their own.
Be thoughtful about what you want to give, how much and where it may go. Be sure the charity has the correct credentials for legitimate deductions; some 501 c organizations do not. Some membership groups and action committees are nonprofit, such as the NFL, but have a separate section of the tax code and different rules.
You can be as generous as you wish, but the IRS may not support all of your donations with allowed deductions.
6. Quid Pro Quo, and Fair Market Value
Giving is great, but fair’s fair. Your tax deduction is for the NET amount of your gift: if you buy something at a silent auction that has a value of $100, and you paid $500 for it, your tax deductible amount is $400. If you buy a $400 item for $40, sorry, no deduction, but hey, you got a great deal.
If you buy a $ 100 ticket to an event, and the value of the food and entertainment is $60, your deductible amount is $40. The nonprofit need to make sure the fair market value is available information on the ticket or receipt.
The whole idea is to support generosity and giving; reducing your tax bill is a good start. But this is still business and a considered, record-keeping based approach can prevent red flags that can result in the awfulness of an audit. The IRS has a publication that offers some guidelines, Form 526 that details what is OK, and what is not, so you can be sure before that nasty envelope from the IRS comes in the mail.
As fundraisers, it is our job to be sure the donor has a great experience donating to our organizations, and making sure about stuff like this is an important way to do it. No one wants a problem with the IRS over trying to do something good.
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