Charitable Deductions

The Internal Revenue Service Publication 526, Charitable Contributions and 561, Determining the Value of Donated Property may help clarify the deductibility of gifts to charities. These publications establish the rules for determining the amount of contributions that are deductible where benefits or privileges are received in return for the contribution.

Deductions are limited based on the type of organization receiving the donation. In general, contributions to charities may be deducted up to 50% of adjusted gross income (AGI). A 30% limitation is applied for donations to private foundations, such as a fraternal organization. Contributions made in excess of the limitation may be carried forward and deducted in subsequent years.

The tax code allows a deduction when a payment to or for the use of a qualified charitable organization is a gift. Gift is further defined as being “a payment of money or a transfer of property without adequate consideration.” If the donor receives a benefit, such as admission to an event or a chance to win a prize, then it is presumed that the payment is not a gift. To qualify as a deductible contribution, there must be evidence that the amount donated exceeds the fair market value of the item or privilege received.

Several examples may help to explain these limitations.

1. A taxpayer purchases a chance to win an automobile in a raffle sponsored by Charity X. Unfortunately, the amount paid is not deductible since a chance to win a valuable prize has been purchased.

2. Charity Y sponsors a concert to raise funds for its activities. The tickets clearly reflect that the amount solicited is higher than the normal admission charge to a similar event. The excess paid can be deducted. If the amount paid is $50 and the normal admission is $8, then $42 would be deductible.

3. Charity Z sells memberships to raise funds. Only the amount paid in excess of the benefits of membership will be allowed as a deduction. Charity Z should define the fair market value of that membership.

A deduction for the contribution of property to charity for its use or sale is also allowed. The fair market value of the item donated is to be determined by the taxpayer. If an item is of significant value, an appraisal is certainly appropriate.

Charitable contributions of $250 or more must be substantiated by a written acknowledgement of the contribution, supplied by the charitable organization. For any gift you should always have a list of the items given their value, condition and original cost. The fair market value of donated goods is usually far less than the original purchase price. The list that follows may provide some guidance. You might also value the contribution based on similar items in thrift or consignment shops.

The Charitable Deductions Worksheet available below, compiled from information on the website of The Children’s Home, may be of some guidance to help establish the value of a donation to a charitable organization. Your items may be of greater or lesser value, depending on age, condition and possibly scarcity (antiques).

It would be wise to make an inventory before making your donation so the charitable organization’s representative can sign it as they give you a receipt. This will be your only record as the charitable organizations normally do not maintain records or file copies with the IRS.

The organization cannot make evaluations of contributions; it is your sole responsibility. If the items are of great value, you may wish to obtain professional evaluation or appraisal before making such a donation.

Click Here for Your Charitable Deductions Worksheet


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