Donation Dos and Don’ts

As we approach the year’s end, many taxpayers think about making contributions to their favorite charities.  The needs this year may be greater than ever.  Don’t get burned because you don’t know the rules.

Make sure the charity qualifies

Donations are only deductible if they are made to a qualified organization.  Make sure you are giving to a bona fide charity with the correct tax-exempt status or your donation will not be deductible.  Use the IRS tool at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search to see a charity’s status.

Above-the-line deduction for taxpayers who use the standard deduction

Typically, charitable contributions were deductible if you itemized your deductions, so those that used the standard deduction were out of luck.  The CARES Act created a new, universal above-the-line deduction for up to $300.  If you donate up to $300 in cash to a qualified charity, you can subtract this amount from your taxable income if you don’t itemize your deductions.

Documentation needed

You need to keep records which properly substantiate any contributions you take as a tax deduction.  Cash contributions include those made by cash, check, credit card, electronic funds transfer, online payment service, or payroll deduction.  You must keep either a bank record (like a cancelled check or credit card statement) showing the name of the charity with the date and amount of the contribution, or a receipt (or letter or email) from the organization detailing the gift.  If you give through a payroll deduction, you must have a paystub or W-2 showing the date and amount as well as a pledge card or other document showing the name of the organization stating that no goods or services were provided in exchange for the contribution.  If you claim a deduction of $250 or more for one contribution, you must have a written acknowledgment from the organization.

Noncash contributions

If you donate goods or property to a charity, you may deduct the fair market value of the property at the time of the contribution.  Cleaning out your closet and donating unwanted clothes can generate a tax deduction, but the value of the used clothing is likely significantly less than your purchase price, and the items must be in good condition.  There are websites that help you determine the value of various items, such as https://goodwillnne.org/donate/donation-value-guide/.

Donated vehicles

Vehicles have their own rules.  If you donate a motor vehicle, boat or airplane, you can deduct the smaller of the fair market value at the date of contribution or the gross proceeds received by the charity upon the sale of the vehicle.  The charity will send you a Form 1098-C which lists the sale proceeds and you must include a copy of this with your tax return.

Volunteer expenses

Volunteering can be a fulfilling way to assist a charity.  You may not take a deduction for the value of your time, but you may be able to deduct some expenses if they are incurred directly as a result of your service.  This can include things like travel costs and meals, but there are strict rules and there cannot also be a personal, living, or family expense component.  For example, if you travel to a hurricane-ravaged area solely to help clear away debris, your expenses might be deductible if that was the only purpose of your trip.  If you spend a few days vacationing on the beach and a few days volunteering, then it is likely none of the expenses will be deductible.

Donations to specific individuals are not deductible

Making a donation to a local family in need is a kind thing to do, but it might not be tax-deductible.  Gifts made to specific individuals are not deductible.  Most GoFundMe campaigns and similar fundraisers for a particular person fall under this rule.  Giving to a charity that might happen to support local families is deductible, but giving money to the family down the street that lost their home to a fire is not.

Many people who donate to others are motivated by kindness, empathy, or the desire to give back.  If you are also expecting a tax deduction, make sure you know the rules before you write that check.