The IRS defines a charitable contribution as a “donation or gift to, or for the use of, a qualified organization.”
A charitable contribution must be made voluntarily without an expectation of receiving anything of equal value in return. The contribution must be made to a qualified organization and cannot be earmarked for use by a specific person. 501(c)(3)s are qualified organizations.
Charitable contributions generally are tax deductible if you itemize; however, such donations are not deductible if someone takes the applicable standard deduction. When someone does itemize, contributions to charitable organizations may be deducted up to 50% of adjusted gross income. If contributions exceed that limit, the excess may be deducted over the next five years through a process called carryover.
Taxpayers must keep records of their contributions to prove the amount donated over the year. An organization generally must give the donator a written statement if it receives a cash or property donation worth more than $250. For cash donations, adequate documentation includes a bank statement, credit card statement, a receipt from the charity, or a cancelled check.
Additionally, to be deductible, contributions must be made before the close of the tax year. Usually that means all donations must be made by December 31 of the calendar year. A check is deemed delivered the day it is mailed rather than received. Credit card donations are deemed to have been made the day the charge was processed rather than when the bill was paid.
If someone makes a property donation, he or she may generally deduct the fair market value of the property. However, special rules apply to vehicle donations. If the car has a fair market value of more than $500, a taxpayer may deduct the lesser of the gross proceeds of a sale of the vehicle or the vehicle’s fair market value on the date of the contribution. If the person making the donation receives a benefit, he or she may only deduct the amount that exceeds the value of the benefit received. A taxpayer may not deduct the value of time or services donated to an organization.
Charitable contributions are claimed as itemized deductions on Schedule A of Form 1040. If more than $500 in total deductions for non-cash contributions is claimed, then the taxpayer must file Form 8283 along with Form 1040.
Sometimes an organization has applied for recognition of tax exemption through Form 1023 but has not yet received confirmation of tax-exempt status. Regardless, the organization wants to start accepting donations. A potential donor must act with care here. If the organization ultimately receives tax-exempt status, it will be considered to have been tax-exempt since its date of creation (so long as it filed Form 1023 within 15 months of the date of its creation). This means that any donations to the organization during the pendency of its application would be deductible. However, if the IRS denies the organization tax-exempt status, any donations made during the pendency of its application will not be deductible. Prospective donors should check with the IRS whether an organization is tax-exempt before donating. The organization also has an obligation to advise potential donors that its 501(c)(3) status is pending.
Ask Davis Law Group
While this blog provides a high-level overview of deductibility of charitable donations, it does not encompass every scenario you may run into. If you have questions about the deductibility of a donation or are a non-profit seeking to become tax-exempt, contact our non-profit attorney today.
Is Your Charitable Contribution Tax Deductible?
The IRS defines a charitable contribution as a “donation or gift to, or for the use of, a qualified organization.”
A charitable contribution must be made voluntarily without an expectation of receiving anything of equal value in return. The contribution must be made to a qualified organization and cannot be earmarked for use by a specific person. 501(c)(3)s are qualified organizations.
Charitable contributions generally are tax deductible if you itemize; however, such donations are not deductible if someone takes the applicable standard deduction. When someone does itemize, contributions to charitable organizations may be deducted up to 50% of adjusted gross income. If contributions exceed that limit, the excess may be deducted over the next five years through a process called carryover.
Taxpayers must keep records of their contributions to prove the amount donated over the year. An organization generally must give the donator a written statement if it receives a cash or property donation worth more than $250. For cash donations, adequate documentation includes a bank statement, credit card statement, a receipt from the charity, or a cancelled check.
Additionally, to be deductible, contributions must be made before the close of the tax year. Usually that means all donations must be made by December 31 of the calendar year. A check is deemed delivered the day it is mailed rather than received. Credit card donations are deemed to have been made the day the charge was processed rather than when the bill was paid.
If someone makes a property donation, he or she may generally deduct the fair market value of the property. However, special rules apply to vehicle donations. If the car has a fair market value of more than $500, a taxpayer may deduct the lesser of the gross proceeds of a sale of the vehicle or the vehicle’s fair market value on the date of the contribution. If the person making the donation receives a benefit, he or she may only deduct the amount that exceeds the value of the benefit received. A taxpayer may not deduct the value of time or services donated to an organization.
Charitable contributions are claimed as itemized deductions on Schedule A of Form 1040. If more than $500 in total deductions for non-cash contributions is claimed, then the taxpayer must file Form 8283 along with Form 1040.
Sometimes an organization has applied for recognition of tax exemption through Form 1023 but has not yet received confirmation of tax-exempt status. Regardless, the organization wants to start accepting donations. A potential donor must act with care here. If the organization ultimately receives tax-exempt status, it will be considered to have been tax-exempt since its date of creation (so long as it filed Form 1023 within 15 months of the date of its creation). This means that any donations to the organization during the pendency of its application would be deductible. However, if the IRS denies the organization tax-exempt status, any donations made during the pendency of its application will not be deductible. Prospective donors should check with the IRS whether an organization is tax-exempt before donating. The organization also has an obligation to advise potential donors that its 501(c)(3) status is pending.
Ask Davis Law Group
While this blog provides a high-level overview of deductibility of charitable donations, it does not encompass every scenario you may run into. If you have questions about the deductibility of a donation or are a non-profit seeking to become tax-exempt, contact our non-profit attorney today.
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