Your gifts to qualified charitable organizations can reduce your taxable income as an itemized deduction. Charitable contributions are claimed on Schedule A of Form 1040. To be deductible, your gift has to go to a nonprofit religious, educational, or charitable group that is certified as a qualified organization by the IRS. These groups are often referred to as 501(c)(3) organizations. Gifts made directly to needy individuals don’t count as charitable donations.
Money donations are any donations that you make directly to a charitable organization using one of the following payment methods:
Cash
A check
A credit card
A debit card
Payroll deduction
Automatic withdrawals from your bank account
If you get something in return for your gift, you can’t write off the full amount. Say, for example, that a local public television station offers a compact disc player in exchange for a donation of $1,000 to the annual fund drive. If the value of the CD player is $200, your deduction is limited to the $800 difference between what you gave and what you got. A taxpayer may get around this rule by refusing to accept the benefit that is offered. In other words, the taxpayer could take the full charitable deduction if they refused to accept the CD player.
Goods and services received by the donor may be disregarded if (for 2010):
Their FMV is not more than the lesser of 2% of the payment or $96 for 2010, or
The payment is at least $48 for 2010 and the only benefits received are token items bearing the charity's logo (mugs, tee shirts, etc.) with an aggregate cost of no more than $9.60 for 2010), or
The charity distributes free, unordered items to patrons accompanied by a request for a charitable contribution, or
The annual payment is $75 or less and the donor receives certain rights and privileges (discounted admission to performances, for example). Discounted tickets to athletic events are not included in this exception.
If you’re not certain whether or not the charity to which you’re donating is approved by the IRS, ask an official of the group for their tax ID number and check with the IRS. For a list of qualified tax-exempt organizations, Publication 78, Cumulative List of Organizations.
The recordkeeping requirements for charitable donations differ depending on the type and amount of contribution.
Cash donations of less than $250:
To deduct a cash donation, regardless
of the amount, you must be able to substantiate the amount of the donation.
When a cash contribution is made, substantiation may be done through bank
records. Bank
records for this recordkeeping requirement include bank or credit union
statements, canceled checks, or credit card statements. They must show
the charity's name, the date, and the amount of the donation. Written
records prepared by the donor, such as check registers or personal notations,
are not sufficient to support charitable donations. For money donations
made by payroll deduction, you can satisfy the recordkeeping requirement
if you have:
A pay stub, Form W-2, or other document furnished by your employer showing the amount withheld, and
A pledge card or other document from the organization stating that it doesn't provide goods or services for donations made by payroll deduction.
Cash donations of $250 or more:
A deduction for a cash donation of $250
or more
may be claimed only if the taxpayer has a written acknowledgement of the
contribution from the qualified organization. The written acknowledgement
must include the following:
The amount of cash contributed,
A statement indicating whether the organization gave any goods or services (other than token items or membership) as a result of the contribution, and
A description and good faith estimate of the value of any goods and services described in (2).
This acknowledgement must be received by the earlier of the date the return is filed for the year in which the contribution is made or the due date, including extensions, for the filing of the return.
Noncash donations of less than $250:
For a noncash contribution of less than
$250 the taxpayer must get a receipt from the organization showing the
name and address of the organization, the date and location of the contribution,
and a reasonably detailed description of the property. However,
a taxpayer does not have to obtain a receipt if it is impossible or impractical
to obtain one such as when property is donated at an unattended drop off
site. In
these cases, the taxpayer must keep a reliable written record for each
item of donated property that shows the following:
The name and address of the organization.
The date and location of the contribution.
A description of the property with reasonable detail.
The fair market value of the property at the time of contribution and an explanation as to how the fair market value was determined.
The cost or other basis the taxpayer had in the property if the taxpayer must reduce the fair market value by appreciation. The record must also show the amount of the reduction and how it was determined.
The amount the taxpayer is claiming as a deduction for the year as a result of the contribution if the taxpayer is contributing less than the entire interest in the property during the year. If the other portion of the interest has been donated, the taxpayer must provide details of each contribution of the other interests.
The terms and conditions attached to the gifted property.
Noncash donations of $250 but less than $500:
For noncash donations of at least $250
but less than $500, you must get and keep a written acknowledgment from
the charity. You must obtain this written acknowledgement no later than
the date that you file your return for the year or, if later, the due
date of the return including extensions.
The charity’s written receipt or acknowledgement of your donation must include:
The amount of the donation.
A description of any property contributed.
An indication of any goods or services that you received, if any, other than certain token items or membership benefits.
A description and good faith estimate of the value of any goods or services that you received unless the only benefit received was an intangible religious benefit such as admission to a religious ceremony.
The charity may provide either a separate statement for each donation or periodic statements substantiating your donations.
For more information, see IRS Publication 1771, Charitable Contributions—Substantiation and Disclosure Requirements.
Noncash donations of more than $500
but less than $5,000:
When a noncash contribution of more than $500 but less than $5,000 is made
a taxpayer must have both a written acknowledgement and written records.
The written records must include:
How the taxpayer acquired the donated property, i.e. by purchase, gift, inheritance, etc.
The approximate date the property was acquired, or if created, produced or manufactured, the approximate date the property was substantially completed.
The cost or other basis, and any adjustments to the basis, of property held less than 12 months and, if available, the cost or other basis of property held 12 months or more. This requirement does not apply to publicly traded securities.
When the value of your donation exceeds a certain dollar threshold, you are required to get a qualified written appraisal from a qualified appraiser. Such appraisals are required when any single item of property, or a group of similar items, has a claimed value greater than $5,000. Publicly traded securities do not require a written appraisal. For stock that isn’t traded publicly, the triggering point is $10,000.
The appraisal must be made by a qualified appraiser, that is, someone with the education, credentials, and experience needed in evaluating the specific kind of property that you are giving away.
In addition, you are required to obtain an appraisal for an item of clothing or a household item if:
The item is valued at over $500 and
The item is not in good condition.
Example: You donate a marble-topped table to a charity. The table is badly damaged and cannot be used without extensive repairs, which the charity is able to make. An appraiser determines that the quality of the marble and other features of the table give it a value of $650.
The IRS imposes a substantial penalty if the value of the donated property is significantly overstated. The cost of the required appraisal can’t be folded into your charitable donation. Instead, it can be deducted only as a miscellaneous itemized expense.
See "Appraisals" in IRS Publication 561, Determining the Value of Donated Property for more details.
When you give away appreciated property, such as stocks, real estate, art, or antiques, the tax-saving potential can be much greater. And the rules are more complicated as well. Your deduction depends in part on whether the property that you donated is considered capital-gain or ordinary-income property. For more information, see IRS Publication 526: Charitable Contributions.
Whether it's used clothing, furniture, or a car, donating property can earn you a tax deduction just as donating money can. Probably the most typical property donations are used clothing and household goods. Your write-off for such gifts is the fair market value of the property at the time you give it. Item donations made must be in good used condition to qualify for a deduction. Although good used condition is not defined, we recommend that you deduct contributions only if the organization intends to sell or use the donated items for its charitable purposes. In particular, if an item is heavily worn, don't assume that the organization will sell or use it. To be sure, ask the organization.
It is often difficult to determine the fair market value of used items and the IRS has no stated amounts that are considered acceptable for these items. However, the Salvation Army publishes a guide which provides the average prices of clothing, furniture and household items in its stores which can be used to establish the value of these items.
For more information, see IRS Publication 561: Determining the Value of Donated Property.
There are relatively new rules pertaining to the donation of a car or other vehicle. Congress was concerned that taxpayers were overstating the value of cars and other vehicles given to charities, passed legislation limiting the amount that can be deducted. When you donate a vehicle to a charity and the charity sells the vehicle, the charity must send you a Form 1098-C within 30 days of the sale that tells you the sales price. This sets the amount that can be deducted on your return. Exception: If the claimed value of the car is $500 or less, you may deduct the value of the donated vehicle. If the charity instead makes substantial improvements to the car, fixes up the car and sells it, gives it to a needy person, or uses it in its charitable efforts, you can still deduct the vehicle's fair market value at the time of the gift.
For more information, see IRS Publication 526: Charitable Contributions.
In addition to money or property that you give directly to a charity, you can deduct expenses for doing volunteer work for a qualified organization. For example, you can deduct mileage expenses if you use your car while doing volunteer work for a hospital or school. You can also deduct mileage expenses for the miles that you drive to and from a charity to drop-off donated goods. The mileage rate for 2010 is 14 cents a mile. If you incur parking fees, tolls, or public transportation expenses, you can deduct those, too.
Other deductible out-of-pocket expenses include the cost and care of any special uniform that you're required to wear while performing services for the charity. For example, if you're a scoutmaster, you can deduct the cost and upkeep of the scout uniform and any associated paraphernalia needed. Materials and supplies that you pay for and use in your volunteer efforts, such as stationery and stamps, are also deductible.
You can't write off the value of any services or time that you donate. For example, if you're a carpenter who usually charges $45 an hour, and you spend 20 hours helping to build a wing on your church, you can't deduct $900, or any other amount, for your time. The reason for this restriction is that under the tax law, only a completed transfer of money or a full interest in property qualifies for the deduction.
If you're a foster parent, you can deduct as a charitable donation the cost of providing for your foster children that exceeds the reimbursement you receive provided you are not in the trade or business or providing foster care. You can also earn a charitable deduction if a student lives in your home under a program sponsored by a qualified organization. To qualify for this deduction, the student can be American or foreign, and must be a full-time elementary or high school student. You can deduct up to $50 a month of what you spend for the student, including the cost of books, tuition, food, clothing, and entertainment. For the purpose of figuring how many $50 allotments you can claim, count any month that the student lives with you for 15 or more days.
Form 8283, Noncash Charitable Contributions:
Additionally, when you claim a deduction
for donated property that exceeds $500 in total for the year, not per
item, you need to file an extra form with your tax return: Form 8283:
Noncash Charitable Contributions. The information required on the form
is basically the same as that needed to substantiate any charitable gift
- what you gave, when, and to whom. For items valued at more than $500
each, you must also specify when and how you acquired the property, and
the cost or adjusted basis of the item.
Example: You made 3 trips during the year to the Salvation Army to drop off some small household items and a few bags of clothing that you were no longer using. The value of the items being dropped off during each trip were $131, $155, and $97. Since the total amount of the donations ($383) is less than $500, you don't need to file Form 8283. Now, let's assume that you donated $175 in goods to Goodwill Industries, as well. When you add the value of this donation ($175) to the value of the items that you donated to the Salvation Army ($383), the total now exceeds $500, and you need to file Form 8283 with your tax return.
Stricter limits apply to gifts to certain types of organizations. Donations to veterans’ groups, for example, come under an overall 30%-of-AGI limit, with a 20% limit of AGI cap on gifts of certain appreciated property.
For more information, see IRS Publication 526, Charitable Contributions.