This article has been updated for the 2017 Tax Year
Donating your time or treasure to help support a worthy cause is an awesome way to give back to your community. You not only benefit the organization with your charitable donation, you are providing the support necessary for the organization to continue to help others for years to come. Here are some tips for handling some of the more common charitable contributions.
Charitable Contributions Must be to a Qualified Organization.
In order for your donation to qualify as a tax deduction, it must be made to a qualified nonprofit, tax-exempt organization. In other words, the IRS must have granted the organization 501(c)(3) tax-exempt status.
There are several ways you can find out if the group is a qualified 501(c)(3) organization:
- Ask the organization for a recent copy of their 501(c)(3)letter of affirmation and determination letter from the IRS .
- Refer to IRS Publication 78, organizations that are qualified to receive tax-deductible donations.
- Call the IRS’s Tax Exempt Customer Account Services line, at 877-829-5500.
In order to qualify as a charitable contribution, out-of-pocket expenses
- must not have been reimbursed by the charitable organization
- must not have been for personal, living, or family expenses
- must be directly tied to the volunteer service provided
- must be incurred only because of the service the volunteer donated
Charitable Contributions Have Limits – Most charitable organizations are know as 50% organizations because your deduction is limited to 50% of your adjusted gross income (AGI). Lets say you make a $50,000 donation to a qualified organization and your AGI is $60,000. You are limited to deducting $30,000 in the current tax year however, you can carry $20,000 forward to the next tax year. These “rollover's” can be carried forward up to 5 years. There are also other limits for donations to private charities so you should consult a tax professional for advice as this can be quite complicated.
For taxpayers with higher AGIs the charitable contribution limits are reduced for taxpayers who make more than $156,900 if married filing separately, $261,500 for single taxpayers, $313,800 for married filing jointly or as a qualifying widow or widower. These limits may change so be sure to check the current IRS publication 526.
Donate Your Stuff
Generally you can claim the fair market value (FMV) of the property at the time the donation is made. There are some special rules for contributions such as: clothing or household items, cars, boats, airplanes, business inventory, partial interest in property, and patents or other intellectual property but we are only discussing the most common types.
Clothing and Household Items – Any clothing or household items you donate to a qualified organization must be in good condition. You can however deduct the fair market value of an item that is not in good condition if you deduct more than $500 for it and include a current appraisal for the item. The FMV of used clothing in good condition is generally considered the amount buyers are willing to pay at consignment or thrift shops for items of similar quality. Refer to Salvation Army's Donation Value Guide to help determine the value of donated items.
Car, Boat or Airplane – You can deduct the fair market value of the item at the time it is donated of a motor vehicle that is used primarily on paved roads, boats, and airplanes. If the item is valued greater than $500 you can deduct the lesser of the gross proceeds if the charitable organization sold the item or the FMV. If the item's FMV is greater than your cost basis, you may have to adjust the FMV to calculate your deduction, refer to Giving Property That has Increased in Value.
Donations for Items Greater Than $5000 – If you are claiming more than $5000 for an item you will need to get an appraisal and attach section B of Form 8283. Exceptions to this rule are for donations of: non-publicly traded stock of $10,000 or less, car, boat, or airplane where your donation is limited to gross proceeds, patents, and certain business inventories.
Donate Your Expertise and Time
A great way too give back to your community is to volunteer your time and expertise and many people find this extremely rewarding. You may find it discouraging to learn that your gift of your time and expertise, no matter how valuable to the recipient, is worthless as a tax deduction according to the IRS. In order to qualify for a deduction, the general rule is you must give away cash or things of material value.
You may however, deduct other expenses incurred during volunteer work such as:
Car and Transportation Expense – Volunteers may deduct actual gas and oil used or take the standard mileage deduction at the rate of 14 cents per mile, to travel to and from your home or place of work to the place where volunteer work is performed. Volunteers may also include the actual cost of tolls, parking fees, bus, taxi cab fare, and the cost of other public transportation such as subway. You cannot deduct the cost of general repair and maintenance, registration fees, depreciation, or the cost of auto insurance premiums and tires.
Travel Expenses – As a volunteer you may also deduct certain travel expenses that are necessary and required as a part of your volunteer work. Travel expenses include: lodging and meals, airfare, transportation, and convention registration fees.
Other Expenses – Other expenses that you may be able to claim include:
- Supplies necessary to perform your volunteer work
- Cost of a required uniform and associated cleaning cost
- Cost of hosting a party or fundraiser for the charitable organization
- Advertising cost that you purchase for the benefit of the organization