Tax Planning: Charitable Contributions

Dec 08, 2015

As we have entered the time of year for giving during this holiday season, now is a good time to consider a plan for your charitable contributions. Giving to your favorite charitable organization can also result in tax savings.

The first thing to consider is what is deductible and what is not. You can only deduct amounts given to certain qualified organizations. Generally these “qualified” nonprofit groups are religious, charitable, educational, scientific, have a literary purpose, or prevent cruelty to children or animals. You can use the IRS’ Exempt Organizations Select Check website to determine whether or not the organization you are contributing is an exempt organization that can accept tax-deductible donations. Some common examples of nondeductible contributions include civic leagues, social and sports clubs, labor unions, foreign organizations, groups whose purpose is to lobby for law changes, homeowners’ associations, gifts made to individuals, and political groups or candidates for public office. Again, check the IRS website if you are unsure whether the organization is qualified.

NonProfit_GivingThe most common form of giving is cash. Cash donations include payments made in the form of cash, check, credit card, debit card or payroll deduction. For donations under $250, you will need some type of record to prove your donation. A  canceled check or bank statement will do. Donors who give cash will also need written acknowledgment from the charity to claim a deduction, therefore using a check for small donations, rather than cash, may be preferable. For donations of $250 or more, you must have written acknowledgment from the organization. It’s important to note each donation is considered separately on a daily basis. For example, if you give $10 to your church every Sunday, each of those $10 contributions is considered separately, rather than an aggregate total for the year. Also, donations charged to a credit card are deductible in the year the charge is made. The rules for noncash donations are a bit more complicated, but here are some general guidelines to follow:

  • The amount of the deduction determines the kind of documentation you will need.
  • There are different ways to value the property. Valuation guides from the Salvation Army or Goodwill Industries can be used, otherwise, the fair market value (FMV) of the item can be used.
  • If the amount is less than $250, keep a record of the name of the organization, date and location, detailed description, FMV and how you determined it, and in some cases the basis if FMV must be reduced.
  • Household items must be in “good” used condition or better to be deducted.
  • If the amount is at least $250 but less than $500, written acknowledgment from the organization will be required
  • If the amount is over $500, Form 8283 must be filed.
  • There are special rules in regards to charitable contributions of cars, boats and airplanes.

The deduction for charitable contributions cannot exceed 50% of the taxpayer’s AGI. A reduced limit of 30% or 20% applies for certain contributions. The IRS’ Exempt Organizations Select Check website will depict the deduction limit percentage for many charities.

If you have any questions, please don’t hesitate to call William Vaughan Company at (419) 891-1040.

By: Mark Dietrich, Accountant

Categories: Non-Profit