Making charitable contributions is an easy and effective way to lower your taxes. You are eligible to take a deduction for contributions or gifts made to certain qualified organizations. The contributions can either be in the form of money or property. You must file Form 1040, U.S. Individual Income Tax Return, and itemize deductions on Schedule A, Itemized Deductions, to take advantage of this deduction.
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Contributions in General
A charitable contribution is a donation or gift to, or for use by, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value in return. Deductible charitable contributions include money or property given to qualified organizations, your out-of-pocket expenses when you serve as a volunteer for a qualified organization, and certain expenses you pay for a student living with you who is sponsored by a qualified organization.
Deductible charitable contributions do not include the following, even if given to a qualified organization:
- Cost of raffle, bingo, or lottery tickets
- Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar organizations
- Value of your time or services
- Value of blood given to a blood bank
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You can deduct contributions made to a qualified organization. To be considered qualified, most organizations (other than churches) must apply to the IRS. Local fundraisers for community members in need of assistance will not be considered qualified organizations unless they have been approved as such by the IRS.
Examples of some qualified charitable organizations include the following:
- Churches, synagogues, temples, mosques, and other religious organizations
- Most nonprofit organizations, such as Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boys and Girls Clubs of America.
- Nonprofit hospitals and medical research organizations
- Nonprofit schools
- Most nonprofit, educational organizations such as Future Business Leaders of America, 4-H Club, and Junior Achievement
- Nonprofit volunteer fire departments
- Public parks and recreation facilities
- War veterans' groups such as Disabled American Veterans and Purple Heart
- Federal, state, and local governments if your contribution is solely for public purposes, such as a gift to reduce the public debt
Some examples of non-qualified organizations:
- Homeowners' associations
- Political groups or candidates for public office
- Organizations whose purpose is to lobby for law changes
- Organizations run for personal profit
- Civic leagues, social clubs and sports clubs
- Labor unions
- Chambers of commerce
- Foreign organizations except certain Canadian, Israeli, and Mexican charities
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Date of Contribution
Usually, you may deduct charitable contributions only in the year they were actually made. A check that you mail is considered delivered on the date you mailed it. A contribution charged on a credit card is deductible in the year you make the charge. The amount of your deduction may be limited depending on the type of property given and the type of organization to which it is given. Some contributions that you are not able to deduct in the current year because of adjusted gross income limits may be carried over to future years.
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Item (Non-cash) Donations
Extra tax deductions may be as close as your closet. If you donated clothing, toys, furniture, or other household items to charity, you are allowed to deduct the fair market value of your donated items. However, no deduction is allowed for these items unless they are in at least good used condition. The IRS does not provide a guide to determine the fair market value suggesting, instead, taxpayers survey thrift and consignment stores for similar items to provide an indication of the item's fair market value.
Generally, the deduction for property contributed is equal to the fair market value of the property at the time of the contribution. Different rules may apply if the value of the property has increased or for vehicle donations.
IRS Publication 561, Determining the Value of Donated Property, provides general IRS guidelines on noncash donations.
Exempt Organizations Select Check is an online database maintained by the IRS and includes all qualified charitable organizations. You may also verify an organization's status by calling the IRS Customer Account Services at (877) 829-5500 (toll-free).
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If you donate a qualified vehicle valued at more than $500, you will not be allowed to take a charitable deduction unless you get a written acknowledgement of the contribution from the charitable organization (usually within 30 days) and include the acknowledgement with your tax return. The amount of your deduction is limited by the organization's use of the vehicle. If the charitable organization sells the donated vehicle without having significantly used the vehicle for charitable purposes, generally your charitable deduction cannot be greater than the amount the organization received from the sale of the vehicle. If the organization uses the vehicle for charitable purposes, you should be able to deduct the fair market value of the vehicle immediately preceding your donation. The organization should issue a Form 1098-C to provide you with the required information. For this purpose, qualified vehicles include motor vehicles, boats, and aircraft.
IRS Publication 4303, A Donor's Guide to Car Donations, provides general IRS guidelines on car donations.
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If you have an American or foreign exchange student living in your home, you may be able to deduct up to $50 per month as a charitable deduction on Schedule A. You must have a written agreement from a qualified organization that administers the student program. The student cannot be your dependent or a relative, and must be a full-time student at the high school level or below.
Expenses that you may be able to deduct include the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment and other amounts you actually spend for the well-being of the student. They do not include general household expenses, such as rent, mortgage payments, taxes, insurance, repairs or the fair market value of lodging.
If you are compensated or reimbursed for any part of the costs of having a student living with you, you cannot deduct any of your costs unless you are reimbursed for only an extraordinary or a one-time item, such as a hospital bill. In this case, you can deduct the expenses for which you were not reimbursed.
You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country.
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You can deduct the out-of-pocket expenses incurred while serving as a volunteer for a qualified organization. This includes the cost of uniforms not suitable for everyday use that you must wear when volunteering, travel expenses where no significant element of personal pleasure is involved, and vehicle expenses for which you can deduct out-of-pocket expenses, such as the cost of gas and oil, or 14 cents per mile. The value of your time or services cannot be deducted.
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Partially Deductible Contributions
If you attended a charity benefit or event, you may be able to deduct the dollar amount that is more than the fair market value of the event. For example, if you attended a dinner fundraiser for a qualified non-profit organization for $65 a ticket and the regular price of the meal is $10, your contribution amount would be $55.
If you receive goods or services in exchange for your contribution, you can deduct only the amount of the payment that is more than the value of the goods or services received. For example, if you spent $20 on a school youth group's prepared food sales and it would have cost $15 to purchase the food items from the store, then you would be able to deduct $5.
If the payment is more than $75, the qualified organization must give you a written statement that indicates the value of the goods or services received.
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Direct Contributions From an IRA
If you are 70 and a half or older, you can make a direct transfer of up to $100,000 from your IRA to any qualified charity. These direct transfers, or Qualified Charitable Distributions (QCD), are considered part or all of your minimum required distribtuion (MRD) for the year. QCDs are not taxable and you are not allowed to claim them as charitable deductions on your tax return. Any distributions that are not QCDs are subject to the normal rules for IRA distributions.
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Records to Keep
The IRS requires you to keep a written acknowledgement from the charitable organization for any single cash or property contribution of $250 or more. You are also required to keep records and receipts for all contributions regardless of the amount or value.
For the contributions of less than $250, you should have a canceled check, receipt from the organization, or other reliable written documentation of the contribution. For all cash contributions, you must have either a bank record or a receipt from the organization. For contributions of $250 or more, written acknowledgement of the contribution from the qualified organization is required to claim the deduction. For property with a fair market value of more than $500, you must include a written description of the donated property with your tax return.
For contributions of property, you should have a receipt indicating the name of the charitable organization, date and location of the contribution and description of the property. You should also have written documentation that includes, in addition to the information on the receipt, the address of the organization, the fair market value of the property at the time of the contribution, and how the fair market value was determined. If you have total property contributions of more than $500, you will need to complete Form 8283, Non-cash Charitable Contributions , and attach it to your return. If you donated property with a fair market value exceeding $5,000, you must get a written appraisal by a qualified appraiser and include the appraisal with your tax return.
For contributions of qualified vehicles (such as motor vehicles, boats, and aircraft) with a claimed value of more than $500, the charitable organization must provide you with a separate written acknowledgement of the contribution (usually within 30 days). Form 1098-C includes the necessary information. The acknowledgement must include the following necessary information.
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