Things to Know when Giving Gifts to Charities by Adam Cohen, CPA
Posted on December 04, 2017 by Adam Cohen
With the season of giving upon us, it is a good time to remember that the charitable donations you make during the year help individuals in need and may provide you with a potential tax benefit.
In addition to making donations to long-standing, well-established 501(c)(3) charities, taxpayers in 2017 are giving to organizations that provide relief specifically to victims of the Las Vegas shooting, the California Wildfires and Hurricanes Harvey, Irma and Maria. Moreover, the rise of crowdfunding websites in today’s hyper-social environment has made it easier for individuals and organizations to raise money in less time than ever before. However, not all giving is created equal. To qualify for a charitable deduction, please consider the following:
- Ensure the charity meets the IRS’s qualifications as a tax-exempt organization. Criminals are known to take advantage of devastating events and create bogus charities for which they use the telephone, email and social media to solicit donations from unsuspecting and altruistic victims. Before reaching into your pocket, visit the IRS’s Exempt Organization (EO) Select Check online tool at https://apps.irs.gov/app/eos/. A gift may be tax deductible only is it is given to a tax-exempt organization and not set aside for use by a specific person. This is an especially important point to remember when donating to crowdfunding campaigns. If the project is not associated with a qualified 501(c)(3) charity or if your monetary contribution is intended to benefit a named person or persons, the IRS will not allow you to claim a tax deduction.
- Understand the limits of charitable deductions. Generally, charitable giving can provide you with a deduction of 20 percent, 30 percent or 50 percent of your adjusted gross income (AGI), depending on the type of property you donate and the type of organization to which you give. However, for the 2017 tax year, Congress lifted the 50 percent of income limit on qualified contributions to hurricane relief charities in order to allow taxpayers to make larger gifts during a time of significant need.
- Decide what type of gift to give. Deductible monetary gifts are those you make by cash, check, credit card or payroll deductions to qualifying organizations. The deduction for gifts of personal property, including clothing, toys or furniture, is limited to the item’s fair market value (FMV), or the amount you would receive if you were to sell those items on the open market. When the FMV of property such as cars or boats exceeds $500, your deduction will be the lesser of 1) the gross proceeds the organization receives from its sale of the vehicle or 2) the vehicle’s FMV on the date of the contribution. When you give a gift of sticks, land or other appreciated assets that you held for more than one year, your deduction will be limited to 20 percent of your AGI. However, by gifting those assets to a charity, you may be able to avoid capital gains taxes on the disposition of those assets and reduce the amount of your adjusted gross income that is subject to the Alternative Minimum Tax (AMT).
- Keep receipts and records proving all donations. When making monetary gifts, ensure that the receiving organizations provide you with a receipt or written statement that lists your name, the name of the charity, and the date and amount of each of your contributions. To substantiate gifts you make via payroll deductions, you must keep copies of pay-stubs or Form W-2 wage statements that show the amount withheld and the name of the receiving charity.
- Give before Dec. 31, 2017. To receive a potential deduction in the current tax year for monetary gifts, you must mail or use a credit card to charge your donation before the last day of the year. This applies even if the organization does not deposit your gift until after Jan. 1, 2018.
- Forget the deduction and give your time. Countless organizations are in dire need of volunteers to lend their time and help advance their goals and mission. While you may not deduct the value of the time you spend as a volunteer, the IRS does allow you to deduct the miles you travel to and from the locations where you donate your time.
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.