Charitable donations: Giving in order to get tax breaks

All Things Legal

By Yosefi Seltzer
Legal Assistance Attorney

Donating to charities is a common practice for military families, particularly when there is a permanent change of station.

There is no better way to unload unwanted furniture, clothes and books than to donate them to a charity or thrift store that will make it available to someone in need.

Donating is a generous act that provides a moral reward. If, however, you would also like to receive a charitable deduction on your tax returns, there are many rules to follow that can be found in IRS Publication 526.

In order to claim a charitable deduction on tax returns, taxpayers typically have to be claiming itemized deductions, often because they own a home and are already deducting the mortgage interest and real estate taxes, which exceeds the standard deduction.

The donation must be made to a qualified organization, and the donor cannot receive any benefit in exchange for the donation. A common example is a fundraising dinner. The charitable organization should provide the estimated value of the meal (say $50) to the donor, and the meal amount must be deducted from the donation. So if the donor gives $200 to the charity, the donor can claim a $150 donation.

If you donate money, the IRS requires that you retain a receipt, a bank record that lists the name of the organization and the date and amount of the contribution, or payroll deduction records such as a pay stub that shows the date and amount of the contribution.

For donations that are $250 or more, the IRS requires that you retain an acknowledgment from the organization or payroll deduction records. The acknowledgment must indicate the amount and date of the contribution, whether you received any goods or services as part of the donation, and if so, a good faith estimate of the value of the goods or services.

The receipt must be received by the donor before filing the tax return or the due date for the return, including extensions.

If you donate to your place of worship on a weekly basis, rather than once a year, be sure to track your donations, ideally using checks or credit cards rather than cash.

If you give cash, utilize labeled envelopes to ensure the charity can provide you an annual statement at year’s end.

If you donate goods, such as furniture, clothes, books or toys, the amount of the charitable deduction will generally be the fair market value of the item at the time of the donation.

The fair market value is generally the resale price that the charity, such as Goodwill or Salvation Army, posts to customers, which is usually much lower than what the donor paid for the item when it was originally purchased.

A common example is the donation of a used coat purchased three years ago for $300, but is resold at the thrift store for $50. The charitable donation amount would be $50. The item also must be in good condition or better to qualify.

If the goods were under $250 in value, the donor must receive a receipt. If the goods were more than $250 but less than $500, an acknowledgment described above must be secured from the charity.

If the value is more than $500 but less than $5,000, the donor must maintain records as to how the donor originally acquired the items as well as the cost of the items when acquired. If one item or a group of similar items is valued at more than $5,000, the donor must obtain a written appraisal for the donated item(s) in addition to all of the previous record-keeping requirements.

Not all donations are deductible. If you donate services to a charity, you cannot deduct for your time, but you can deduct mileage at 14 cents per mile or the actual gas costs that you paid to get to and from the charity.

You also cannot deduct payments made to individuals/panhandlers, for raffles, lotteries, political organizations/candidates, labor unions or for fundraisers such as to support school bake sales or field trips.

Donating to charitable organizations is a generous act. If you would like to take advantage of the tax benefits of your donations by claiming a charitable deduction, make sure you comply with the various rules and keep accurate records of your donations.

To discuss your personal legal questions, call the Legal Assistance Office to schedule an appointment at 301-677-9504 or 301-677-9536.

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