As we approach the end of the year many persons are reviewing their contributions for the year and making year end donations. In this process it is helpful to review the rules. (IRS Publication 526 Charitable Contributions).
Contributions You Can Deduct
Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified Organization
Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply.
Form 1040 required. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A (Form 1040). The amount of your deduction may be limited if certain rules and certain limitations apply. See IRS Pub 526
Contributions From Which You Benefit
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 goods or services, the excess may be a charitable contribution. For the excess amount to qualify, you must pay it with the intent to make a charitable contribution.
Example 1. You pay $65 for a ticket to a dinner dance at a church. Your entire $65 payment goes to the church. The ticket to the dinner dance has a fair market value of $25. When you buy your ticket, you know its value is less than your payment. To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). You can deduct $40 as a charitable contribution to the church.
Example 2. At a fundraising auction conducted by a charity, you pay $600 for a week’s stay at a beach house. The amount you pay is no more than the fair rental value. You have not made a deductible 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, the reasonable value of the right to attend the event is the value of your benefit. 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.
Out-of-Pocket Expenses in Giving Services
Travel. Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal
pleasure, recreation, or vacation in the travel. This applies whether you pay the expenses directly or indirectly. You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses.
The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses.
You can deduct as a charitable contribution any unreimbursed outofpocket expenses, such as the cost of gas and oil, directly related to the use of your car in giving services to a charitable organization. You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution.
You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate.
You cannot deduct personal, living, or family expenses, such as the following items.
The cost of meals you eat while you perform services for a qualified organization, unless it is necessary for you to be away from home overnight while performing the services.
Value of Time or Services
You cannot deduct the value of your time or services
When To Deduct
You can deduct your contributions only in the year you actually make them in cash or other.
Time of making contribution. Usually, you make a contribution at the time of its unconditional delivery.
Checks. A check you mail to a charity is considered delivered on the date you mail it.
Text message. Contributions made by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account.
Credit card. Contributions charged on your bank credit card are deductible in the year you make the charge.
Records To Keep
You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount of your contributions and whether they are:
Cash contributions, Noncash contributions, or Out of pocket expenses when donating your services.
Note. An organization generally must give you a written statement if it receives a payment from you that is more than $75 and is partly a contribution and partly for goods or services. Keep the statement for your records. It may satisfy all or part of the recordkeeping requirements explained in the following discussions.
Cash contributions include those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction.
You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following.
- A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include:
- A canceled check,
- A bank or credit union statement, or
- A credit card statement.
- A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.
Contributions of $250 or More
You can claim a deduction for a contribution of $250 or more only if you have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records.
If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions.
Amount of contribution. In figuring whether your contribution is $250 or more, do not combine separate contributions. For example, if you gave your council $25 each week, your weekly payments do not have to be combined. Each payment is a separate contribution.
If contributions are made by payroll deduction, the deduction from each paycheck is treated as a separate contribution.
If you made a payment that is partly for goods and services, as described earlier under Contributions From Which You Benefit, your contribution is the amount of the payment that is more than the value of the goods and services.
Acknowledgment. The acknowledgment must meet these tests.
- It must be written.
- It must include:
- The amount of cash you contributed,
- Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits),
- A description and good faith estimate of the value of any goods or services described in (b) (other than intangible religious benefits), and
- You must get it on or before the earlier of:
- The date you file your return for the year you make the contribution, or
- The due date, including extensions, for filing the return.
If the acknowledgment does not show the date of the contribution, you must also have a bank record or receipt, as described earlier, that does show the date of the contribution. If the acknowledgment shows the date of the contribution and meets the other tests just described, you do not need any other records.