I got a text last week from my daughter who is in college. She is a junior at The University of Texas and very active in philanthropy at the school. Her text was brief as usual, "hey Dad I just donated $50 to a charity, should I save the receipt so I can deduct it on my tax return?" I was proud that she thought to ask about the tax ramifications of charitable giving, but I am sure she was confused when I said she did not qualify to deduct the gift to charity, so no need to get a receipt.
As usual our laws regarding gifts to charity are complicated. On a very simplistic basis, to deduct your gifts to charity, you must check three things:
- Do I qualify for the deduction?
- Does your gift qualify as a charitable deduction?
- What documentation do I need?
- How do I know if I can Deduct Charitable Contributions?
As an individual taxpayer, you can only deduct your gifts to charity if you itemize on your tax return. You can give enough money to charity to qualify for itemizing so if you are planning a big charitable deduction, please call us.
C-Corporations can deduct their gifts to charity, but those gifts are limited to 10% of taxable income. So for maximum tax benefit on your C-Corporations charitable giving, plan accordingly......and call us!
Partnerships and S-Corporations can make charitable contributions too. However, the deduction flows through to the partners/shareholders and deductibility is determined by the shareholders/partners individual tax status.
Does My Donation Qualify as a Charitable Deduction?
Your contribution must be made to a qualified organization such as a 501(c)(3), church or religious organization. So, your donation to the homeless person on FM 1960 is not deductible nor would a donation to a political party, campaign or committee. To be sure, search for the charity at the IRS's Website.
What Documentation do I Need?
For cash donations, keep good records of the money you have donated. Hang on to any canceled checks, credit card statements, receipts from the charity, etc. Any cash donations over $250 will require a receipt from the charity.
For donations of household items and clothing, all items must be in good condition and you must have a receipt. Junk that is not reusable by the charity is not allowed to be deducted. Items such as socks and underwear are considered junk, so the IRS says no deduction. That Victoria's Secret collection you have decided to rid from your closet is not deductible.
Contributions over $5,000 worth of non cash items can get even trickier. If you claim a deduction for an item or group of similar items for more than $5,000, you must get a qualified written appraisal. In figuring whether your deduction is over $5,000, combine your claimed deductions for all similar items of property donated to any charitable organization during the year.
Have Your Eyes Glazed Over Yet?
I know this is boring tax stuff, but it is important for you to have an idea of what you want. I hope you get the point that charitable contributions are not that easy to deduct or to determine deductibility. So when in doubt about the deductibility of your charitable donation, ask us.
This weekend I will be visiting with my future step daughter who is flying in for a quick visit with her Mom. If you have any questions or want to bring a friend by who needs a CPA firm that focuses on their small business needs, give us a call.