Taxpayers who itemize their deductions on Schedule A of IRS Form 1040 can claim a deduction for gifts made to qualified charities. Most are aware that monetary gifts to a church or the American Cancer Society are fully deductible with adequate documentation. But what about raffle tickets bought at a church fundraiser? Or tickets purchased for the American Cancer Society’s annual ball? The Pennsylvania Institute of Certified Public Accountants (PICPA) addresses four questions one should raise to determine whether or not a donation is deductible.
What Kind of Charity Am I Donating To?
Your first step should be to establish whether your gift has been made to a qualified charity. These include most religious organizations, nonprofit schools and hospitals, and myriad health and welfare organizations serving our communities. It does not include individuals, even if the individual is needy. This precludes deductions the popular online fundraising sites that have become prevalent. If you’re not sure if your gift is going to a qualified charity, check out the Exempt Organizations Select Check
search tool on the IRS website.
How Much Is Deductible?
Once you find that the gift is going to a qualified charity, you need to determine if it is fully deductible, partially deductible, or not deductible at all. Generally, a gift of money or property made to, or for the use of, a qualified charity is fully deductible. But if you receive some benefit from making a gift It is not as clear-cut. As long as it is your intent to make a charitable contribution, you can deduct the excess of the amount given over the benefit received. Here are a few examples:
- You pay $100 for a ticket to the American Cancer Society’s annual ball. The ticket for this event has a fair market value of $25. You can deduct $75 as a charitable contribution. Note: charities are required to report the value of goods or services received when the payment exceeds $75. If no value is provided, then none of the payment qualifies for a deduction.
- You purchase raffle tickets at the church bazaar. Whether you win anything or not, you cannot deduct for raffle tickets or any other games of chance.
- You attend a charitable fundraising event at which there is a silent auction. You bid $1,000 on a week’s stay at a beach house in New Jersey. This is less than the fair rental value of the house, so no deduction can be taken.
Are Time and Service Deductible?
Another area of charitable giving that is frequently questioned is the deductibility of time and expenses incurred as a volunteer for a qualified charity. The value of your time or services rendered is never deductible. However, you can deduct out-of-pocket expenses you incur while providing the service, so long as they are unreimbursed, directly connected to the service provided, incurred only because of the services given, and are not personal, living, or family expenses. The IRS allows a deduction of 14 cents per mile when you use your car for charitable volunteer activities.
What If the Gift Is Property?
Generally, the amount of your deduction for property given to a qualified organization is its fair market value. The determination of the fair market value of property is beyond the scope of this discussion. If you are contemplating a gift of property, whether it be clothing, automobiles, stocks, or whatever, consult IRS Publication 526
for further guidance.
In summary, when making a charitable gift that you wish to deduct, be sure it is to a qualified charity and that you consider any benefits received from making the gift. And of course, be sure you have adequate documentation to support the deduction. For more tax help, visit www.picpa.org/moneyandlife