Robert Loe CPA

Deducting Charitable Contributions

For Cash Donations

No cash donation should be deducted without a receipt, and donations of $250 or more require an acknowledgement letter from the recipient organization.

Some cash donations result in the donor receiving something in return, such as purchasing an item at a charity auction or buying tickets to a benefit dinner.  In such cases, the deduction is the donation amount less the fair market value (FMV) of the item received.  The organization hosting such an event will usually provide you with an itemized list of your bids and the FMV of the items you received.

For Noncash Donations

When total noncash donations exceed $500, a Form 8283 must be attached to the tax return.  This form lists details about property donated, how and when it was acquired, the method used to assign value, and other details.  For items with a FMV exceeding $5,000, an appraisal must be included with the Form 8283.  Household and clothing items with a FMV exceeding $500 require an appraisal.

Many taxpayers have a tendency to overestimate the value of noncash donations.  It is important to remember, for household goods and clothing especially, that once used, an item loses much of its value.  The IRS offers some guidance on how to assign a FMV to noncash donations in Publication 561, which can be found at: http://www.irs.gov/publications/p561/ar02.html#d0e545

Limitations on Deductions

A deduction for charitable contributions may only be taken if the taxpayer elects to itemize their deductions, that is, fill out a Schedule A.  Additionally, donations must be made within the tax year to be deductible.  If a donation is pledged in December but paid in January , it is deductible in the later year.

Charitable contributions that exceed 50% of a taxpayer’s adjusted gross income (AGI) for the year are not deductible.  For contributions to private foundations and certain other types of organizations, the deduction is limited to 30% of the taxpayer’s AGI.  However, amounts that are not deductible in one year may be carried over to future years.

Only contributions made to qualifying organizations are tax deductible.  Contributions made to political and other types of organizations may not be deducted.  The IRS maintains an exhaustive list of approved organizations, which may be searched at: http://www.irs.gov/app/pub-78/
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