The National Center for Charitable Statistics reports that more than half of charities and foundations said they received the majority of their donations in October, November, and December.
If you made charitable contributions over the holidays and you want to receive tax deductions for them, how you made your donations is important.
Situations that don’t generate deductions include giving money to a homeless person on the street; helping a victim of an accident; helping your friend whose house just got flooded; arranging to buy books or clothing for a child in need; putting cash into a collection box at the market or church.
These do not qualify because in order to get a tax benefit from your contributions or donations, you must meet the following five conditions:
1. The donations must go to a valid, registered U.S. 501(c)(3) exempt organization or a recognized religious institution, and the organization must be in good standing with the IRS. You can look it up on the IRS website. Donations to individuals such as a homeless person or friends who need clothes do not qualify.
2. You must have a receipt for your donation, especially if any single donation is $250 or more. The same applies if your annual donations to an organization are $250 or more. Donations to religious organizations are eligible for tax deductions with a receipt. Keep in mind that you must have your receipt in hand before you file your tax return. Without that, even if you made a legitimate $10,000 cash donation, you will lose the deduction.
3. You may not receive a direct benefit from the donation. For instance, if you contribute $150 to your local PBS station and in return they give you a Doc Martin DVD collection valued at $125, you must reduce your deduction by the value of the incentive. If you pay $500 a plate at a fundraising banquet, the receipt must show the value you received (perhaps $75 for the meal). If you bid $300 for a vintage beaded purse at a silent auction, and the value of the purse is $500, you won’t receive the deduction because you paid less than the value of the purse.
4. The donation must not benefit a specific individual. Instead, it must be for the general use of the exempt organization to which the donation is given. For example, if you learn about an accident victim on the local news, and you send money to a fund specifically for that victim, that donation is not deductible. However, it could be considered a deductible donation if you sent the money to a charity that helps all accident victims or people in trouble.
5. When making a non-cash donation, you still need a written receipt. It’s not that important for donations under $250, but for anything more, keep details (even photos or videos) of the items donated, and definitely get receipts. For donations of individual items (or an aggregate of items) worth $5,000 or more, you need a signed, professional appraisal in addition to the charity’s receipt. The appraiser must sign Part III of the Form 8283. Finally, there are special rules for donating vehicles. Frankly, they are so stringent that it may be easier to sell the vehicle and donate that money to your charity.
To learn more about charitable contributions and tax implications, be sure to read Publication 526, authored by the IRS.
Eva Rosenberg, EA is the publisher of TaxMama.com ®, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.