Taking charitable contribution deductions in your itemized deduction is a good way to decrease your tax liability while helping out an organization in need. There are many types of contributions that you can and cannot take. Below we discuss contributions and what you can and cannot donate:
Contributions: Generally you can deduct your contributions of money or property that you make to or for the use of a qualified organization. A gift or contribution is for the use of a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. The contributions must be made to a qualified organization and not set aside for use by a specific person.
Types of Qualified Organizations: There are many types of organizations that you may give contributions to in order for a tax deduction:
- Churches a convention or association of churches temples synagogues mosques and other religious organizations.
- Most nonprofit charitable organizations such as the Red Cross and the United Way.
- Most nonprofit educational organizations including the Boy (and Girl) Scouts of America colleges museums and daycare centers if substantially all the childcare provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. However if your contribution is a substitute for tuition or other enrollment fee it is not deductible as a charitable contribution.
- Nonprofit hospitals and medical research organizations.
- Utility company emergency energy programs if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs.
- Nonprofit volunteer fire companies.
- Public parks and recreation facilities.
- Civil defense organizations.
Athletic Events: If you receive a benefit as a result of making a contribution to a qualified organization you can deduct only the amount of your contribution that is more than the value of the benefit you receive. If you pay more than fair market value to a qualified organization for merchandise goods or services the amount you pay that is more than the value of the item can be a charitable contribution. For the excess amount to qualify you must pay it with the intent to make a charitable contribution.
Charity benefit events: If you pay a qualified organization more than fair market value for the right to attend a charity ball banquet show sporting event or other benefit event you can deduct only the amount that is more than the value of the privileges or other benefits you receive. If there is an established charge for the event that charge is the value of your benefit. If there is no established charge your contribution is that part of your payment that is more than the reasonable value of the right to attend the event. Whether you use the tickets or other privileges has no effect on the amount you can deduct. However if you return the ticket to the qualified organization for resale you can deduct the entire amount you paid for the ticket.
Membership fees or dues: You may be able to deduct membership fees or dues you pay to a qualified organization. However you can deduct only the amount that is more than the value of the benefits you receive.
Written Statements of Contribution: You must have a “bank record” or written communication from the charity regardless of the amount. For donations of $250 or more (either cash or property) you much obtain a written acknowledgment from the charity. The statement must tell you that you can deduct only the amount of your payment that is more than the value of the goods or services you received. It must also give you a good faith estimate of the value of those goods or services.
There are also a lot of contributions that you may not deduct. The following is a list of contributions you cannot deduct:
- A contribution to a specific individual
- A contribution to a non-qualified organization
- A contribution made to a charitable organization created or organized under the laws of a foreign country except as provided by a tax treaty between that nation and the United States.
- The part of a contribution from which you receive or expect to receive a benefit
- The value of your time or services
- Your personal expenses
- A qualified charitable distribution from an individual retirement arrangement (IRA)
- Appraisal fees
- Homeowner’s association
- Political organizations & candidates
- Civil leagues & associations
- Certain contributions to donor advised funds or
- Certain contributions of partial interests in property.
The IRS provides a resource online where you can research qualified organizations. Click here to learn more here.
There are many rules and guidelines that follow contributions. The important things to note is always keep good records and get your receipts and written statements where applicable.