Your Chartitable Gifts Make a Difference for Others and for Your TaxesWhen you give away cash or goods to qualified nonprofit organizations, you will probably be able to take a tax deduction as partial reward for your generosity. However, the IRS rules for deducting charitable contributions aren’t as simple as many people might think. For example, deduction limits can apply, and certain gifts require timely written acknowledgment from the recipient organizations. Qualified Charitable OrganizationsIn order for a donation to be deductible, it must be given to a “qualified U.S. organization.” Not all nonprofit organizations qualify, but the IRS regularly publishes a list of the ones that do. In general, the qualifying groups can be categorized as: governmental bodies; nonprofit groups organized for religious, educational, scientific, or literary purposes; war veterans’ groups; fraternal societies and lodges; and certain nonprofit cemetery companies. Examples of typical qualified organizations include churches, nonprofit hospitals, colleges and universities, school booster clubs, libraries, public parks and recreation facilities, etc. When gifts are made to fraternal organizations and lodges, only the part of the gift that those organizations give away to other qualified charities is deductible. In addition, gifts to a cemetery company can’t be deducted if they are ear-marked for the care of a specific cemetery lot. Limits on Charitable DeductionsIn general, deductions for charitable gifts are limited to 50% (60% for years 2018 through 2025 for cash contributions to public charities) of a taxpayer’s adjusted gross income. However, depending on the kind of organization and the type of property being given, that limit can dip as low as 20%. Prior to tax reform there was an overall limit on itemized deductions for higher income taxpayers. Tax reform suspended that limitation. However, your state may not have conformed to that suspension. Gifts That Return a Benefit to YouIf a taxpayer is audited on his or her contributions, the IRS looks to see whether voluntary donations were made intentionally or whether it was just payment for services provided by a charitable organization. For example, payments to a parochial school for a child’s tuition or to a church for a family wedding give the taxpayer a benefit and don’t qualify as contributions. Payments to charities for raffle tickets, lotteries, or bingo also fall in this category and aren’t deductible – with these one is really purchasing the chance to win that new TV, trip to Hawaii, etc. In certain situations, only a partial benefit may be received for what is given. In that case, one can generally deduct the amount of the gift that is over and above the value of what is received. Say you paid $50 to attend a fundraising dinner at your church. The church determines that the value of the dinner and program is $15. Your deductible charitable contribution is $35, i.e., the amount of your payment that exceeds $15. Giving Your TimeAlthough you may volunteer many hours working for a charitable organization, the value of your time is not deductible. However, if you incur expenses (e.g., travel costs to and from the charity’s location) related to volunteer work, those costs are deductible. Other out-of-pocket costs incurred on behalf of the charity may be deductible as well. Travel Away From Home for CharityA charitable deduction can be taken for travel expenses (including meals and lodging) incurred while performing services for a charity in an out-of-town location. However, two important criteria need to be met in order to get this deduction: You must perform services for the organization in an official capacity while you’re away from home. No “significant element of personal pleasure” must be connected with the travel. Does this mean your trip can’t be enjoyable? No, but it does mean that the primary purpose of your travel must be related to your charitable duties and not be a personal vacation. Special Rule for Taxpayers Age 70.5 & OlderTax law provides a special provision that allows individuals age 70.5 or over—who are required to take an annual required minimum distribution (RMD) from their IRA— to directly transfer funds from their IRA account to a qualified charity or charities. In doing so, the amount transferred escapes taxation but still counts towards their RMD for the year. The maximum IRA-to-charity distributions each eligible IRA owner may make per year is $100,000. Non-Cash DonationsDonations don’t always have to be in cash. One can also deduct the “fair market value” (FMV) of donated items like used clothing, furniture, and appliances (FMV is the price goods are likely to sell for on the open market). Condition of Contributed Items: The condition of the contributed item is important, because except as noted below, tax law does not permit a charitable contribution for clothing or household items unless the contributed items are in “good used condition” or “better.” They also do not allow a deduction for items with minimal monetary value, such as used socks or undergarments. There is a provision that permits a deduction for clothing and household goods that are not in good used condition or better. Under this provision, a deduction can be taken if (1) the amount claimed as a deduction is greater than $500, and (2) the taxpayer includes with the taxpayer’s return a qualified appraisal with respect to the property. Household items include furniture, furnishings, electronics, appliances, linens, and other similar items. Food, paintings, antiques, and other objects of art, jewelry and gems, and collections are excluded from the definition of household items for this purpose.