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Being Charitable Doesn’t Mean It’s Deductible

Everyone admires individuals who show their heart by sharing from their pocketbook. Whether or not the IRS acknowledges these acts of charity as tax deductions isn’t quite as solid a notion. Donors who learn after the fact that their donation doesn’t qualify for a tax deduction will quickly get frustrated.

This blog discusses how to increase your potential benefit from these deeds of philanthropy. Assuming you’re in the position to itemize deductions on Schedule A, some basic rules exist to support the deductibility of the donations.

Internal Revenue Code Section 501(c)3 recognizes organizations qualified to receive contributions deemed as charitable deductions. These entities, with the exception of churches, applied for and received a determination letter from the IRS approving their applications to:

a) be exempt from income tax on their income, and

b) provide a charitable deduction for those who donate.

You can determine if your favorite charity is on the list at http://apps.irs.gov/app/eos. If a charity isn’t on the list, it doesn’t count. Payments to political organizations and candidates, fraternal and professional groups, and neighborhood associations don’t qualify under this exemption.

Even if the charity qualifies, you must still document the gift. All donors are required to maintain bank records or written acknowledgement from charities for monetary contributions before claiming deductions on their federal income tax return. Don’t wait until your returns are audited to assemble these supporting records! A recent Tax Court disallowed a contribution of more than $50,000 on a personal return because the donor didn’t have a properly prepared, current receipt. Here are the basic rules to follow:

Written acknowledgment from the charity is required for a single contribution of $250 or more before the donor can claim the deduction on the federal income tax return.

  • An annual receipt or letter is OK; each donation does not need a separate receipt.
  • If the donor receives some benefit from the contribution, the receipt must specify the value of the item, service, ticket, etc. shared in return. Religious organizations can state that “intangible religious benefits” were provided; the acknowledgment doesn’t need to describe or value those benefits.  Examples of intangible benefits include admission to a religious ceremony and a de minimis tangible benefit, such as wine used in the ceremony. Tangible (not exempt) religious benefits include education leading to a recognized degree, travel services, and consumer goods.

Examples of Written Acknowledgments

Below are examples of how written acknowledgments by qualified charitable organizations should look:

  • “Thank you for your cash contribution of $300 that (organization’s name) received on July 12, 2012. No goods or services were provided in exchange for your contribution.”
  • “Thank you for your cash contribution of $350 that (organization’s name) received on May 6, 2012. In exchange for your contribution, we gave you a cookbook with an estimated fair market value of $60.”

Additional rules apply for non-cash contributions and for the recordkeeping of donated receipts by charities. Check back for details on these other provisions.

If you need any immediate assistance or answers regarding your charitable contributions, contact Patrick & Robinson CPAs at 904-396-5400 or send an e-mail to Office@CPAsite.com.

And if you work for a non-profit or serve on the board of one, visit www.OnlineStewardship.com to understand the charitable organization’s responsibilities to its donors.

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