Individuals who make gifts to charities can claim an itemized deduction for such contribution if the following rules are satisfied. The following is a mere overview of the income tax rules in this area.
Charitable Contributions Must Be Reported on Schedule A of Form 1040
To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
Gift Must Be To a Qualified Organization
If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Generally, such organizations must be tax qualified with the IRS.
A taxpayer cannot deduct contributions made to specific individuals, political organizations and candidates.
See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
Must Take Into Account Any Benefit Received In Valuing Charitable Gift
If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit you have received.
Fair Market Value of Gift Needs to Ascertained and Determined
Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible.
What Is Fair Market Value?
Fair market value is generally the price at which property would change hands between a hypothetical willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. This is the basic, textbook definition, but it basically means that a determination must be made of the true value of the gifted property. In some cases this determination must be made by a qualified appraiser and a qualified appraisal must be determined and documented.
Establish and Maintain Substantiation of Charitable Gift
Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain:
- A bank record containing the name of the organization, the date of the contribution and amount of the contribution.
- Payroll deduction records containing the name of the organization, the date of the contribution and amount of the contribution.
- A written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution.
- Text message donations. For these donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
Charitable Deductions of $250 or More
To claim a deduction for contributions of cash or property equaling $250 or more you must have the following:
- A bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash, and
- A description of any property contributed, and
- Whether the organization provided any goods or services in exchange for the gift.
One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
Charitable Contributions Of Over $500: Form 8283 Required
If your total deduction for all non-cash contributions for the year is over $500, you must complete and attach IRS Form 8283, Non-cash Charitable Contributions, to your return.
Charitable Contributions Of Over $5,000: Section B of Form 8283 Required
Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
This requirement does not apply to stocks or securities that are traded on a established securities market.
Services To Charitable Organization
The value of services rendered to any charitable organization is not deductible.
However, the following unreimbursed expenses related to those services are deductible:
- Transportation expenses incurred. The standard mileage rate is currently 14 cents per mile.
- Expenses such as meals, travel, lodging incurred while attending a qualified charity's convention as a delegate or officer of the organization.
- Cost of uniform required to be worn by Red Cross workers.
For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining value, refer to Publication 561, Determining the Value of Donated Property.
