Not all Charitable Contributions are Deductible by Adam Cohen, CPA
Posted on April 07, 2017 by Adam Cohen
The U.S. tax code allows individuals to claim a deduction on their federal income tax returns when they donate money or products to a charitable, non-profit organizations. The deductible contribution reduces the amount of a taxpayer’s income that is subject to tax. However, all donations are not treated equally. Following are some tips for taxpayers to remember to in order to maximize the tax benefits of their charitable contributions.
Ensure the Charity is Qualified. Taxpayers should confirm that the entities to which they make contributions are in fact qualified exempt organizations that are eligible to receive tax-deductible donations. This may be accomplished on the IRS’s website or on the website of Charity Navigator.
Know the Treatment for Different Types of Donations. The amount taxpayers may deduct for gifts of property, rather than cash, are limited to the item’s fair market value. Therefore a donation of used clothing, furniture or other household goods is deductible only up to the amount the taxpayer would receive if he or she sold the property on the open market during that tax year. Special rules apply for donations of large-ticket items, such as cars and boats.
Similarly, the amount taxpayers may deduct from their taxable income will be limited when they receive something in return for their donation, such as meals or merchandise. Under these circumstances, taxpayers may only deduct the amount of their contributions that exceed the fair market value of the benefits they received.
Get Documented Proof. To deduct a charitable contribution of cash or goods valued at $250 or more, taxpayers must receive from the exempt organization a written statement detailing the amount of the contribution and/or a description of the donated property.
Know Your Reporting Requirements. Taxpayers intending to deduct charitable contributions must itemize deductions on Schedule A of file Form 1040, U.S. Individual Income Tax Return. For non-cash contributions totaling more than $500 for the year, taxpayers must File Form 8283. Property valued at more than $5,000 requires taxpayers to include with their income tax filing a qualified appraisal of the property.
About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail firstname.lastname@example.org.