If it hasn’t happened already, you’ll soon receive phone calls, e-mails, and knocks on your front door seeking donations for a number of worthy causes. Quite possibly, you’ll be solicited for a few not-so-worthy causes by scammers. Make sure you’re prepared for the season of giving, not only for your protection, but also so you get the proper tax benefits from your donation.
The Pennsylvania Institute of Certified Public Accountants (PICPA) offers these tips as you look to help some appealing causes in the coming months.
First, make sure you know you’re giving to a legitimate charity. Look at charity review services and research online. The best ones are Charity Navigator
, and the BBB’s Wise Giving Alliance
. Make sure a charity is registered and legitimate. Many have similar sounding names, and some use their funds better than others. Make sure that the money or goods that you are giving are going to an organization that has tax-deductible status and is a registered 501(c)(3) with the IRS, or is a church or religious organization. Here are some things to watch for:
- Any organization that concentrates on political, lobbying, and legislative activities is not deductible.
- Any organization that is a chamber of commerce, labor union, or trade association is not deductible.
- If the organization is a for-profit school or hospital, the gift is not deductible.
- Donations to online fundraising sites, such as GoFundMe or GiveForward, are generally considered to be personal gifts to an individual rather than to a registered 501(c)(3) nonprofit organization and are not deductible. There are a few exceptions if it is given to a certified charity, and in this case a tax-deductible receipt will be provided.
- A nonprofit’s lottery, bingo, or raffle tickets that you purchase are not deductible.
- Time spent volunteering is not deductible.
It’s paramount to keep accurate records of your contributions. You must have documentation of all cash contributions — even for a $1 donation —-for it to be deductible. No receipt means no deduction. Here is what qualifies as documentation:
- The actual cancelled check (for donations less than $250)
- Bank statement or record
- Credit card statement
- A telephone bill will meet the record-keeping requirement to text message donations if it shows the name of the receiving organization, the date of the contribution, and amount
- If giving at a store checkout, save the receipt from the store as they will typically write the cause and amount
Receipts or letters issued by a charity are required for all donations more than $250, and they must be in your possession before filing your tax return. It is important that the letter state the organization name, the date and amount of the donation, and whether or not any good or services were provided in exchange for the gift. There is no deduction without the proper language.
If something is received in return for a donation, you can only deduct the amount that is over and above the fair market value of the merchandise, goods, or services provided. Most legitimate organizations provide these amounts in the letters you receive. This does not include free, unordered items from a charity or token gifts that bear the charity’s name (considered insubstantial gifts).
Noncash donations also require acknowledgement. Typically, you have to determine the item’s fair market value. Substantiation of the goods donated could include the following:
- List of the goods donated and the condition of the items (must be in “good” condition or better).
- Fair market value (usually thrift shop value) of the used items. Valuation guides can be found online. If filling out Form 8283, you will need the original purchase price or original date of purchase and how it was acquired.
- Any item worth more than $5,000 must be appraised professionally to make a claim. Keep a copy of this appraisal.
If your noncash donations are valued at $500 or more, a Form 8283 Non-Cash Charitable Contributions must be filled out and attached to your tax return. If donating a car, truck, boat, or airplane worth more than $500, a written acknowledgment and 1098-C from the organization is required before the deduction can be taken.
Travel to and from donation locations, as well as miles driven during volunteer work, are deductible at 14 cents per mile. For a donation of publicly traded securities, the high/low average market price on the date of transfer to the charitable organization is considered the fair market value.
Turn to a CPA
A CPA can help with any questions about donations and tax advantages of donations. He or she can also offer practical advice and realistic solutions for a wide range of financial giving and planning concerns.
Don’t have a CPA? Visit www.picpa.org/moneyandlife
to use PICPA’s CPA locator and access other tax and budgeting resources.