Making tax-deductible donations during the “season of giving” has proven to be beneficial to both the giver and the receiver. It can be a smart business decision that keeps a business or individual in the lowest tax bracket possible, and the charity can continue to help less fortunate people in our communities. To make the most of this win-win situation, however, we must keep four (4) important rules in mind:
1.) The non-profit organization must qualify under IRS guidelines. Not all non-profit and tax-exempt organizations are eligible to receive contributions that a business can itemize as a “charitable gift” for a tax deduction. The organization must have either 501(c)3 or 501(c)19 status to qualify. To confirm that an organization has the proper status, you could verify their registration credentials through your state’s Attorney General’s office or the Better Business Bureau. Beware of organizations that have names similar to established charities or include “police” or “fire” in their name in order to appear more credible than they really are. United Way is an organization that usually maintains high standards when accepting a charity as an affiliate. Because religious organizations are not required to apply to the IRS for their qualifying status, you can call the IRS at (877) 829-5500. This phone number is exclusively for concerns regarding tax exempt organizations, not other tax questions.
2.) You must determine the true and correct value of your donation. Usually you can deduct the fair market value of the goods that are donated, taking into account the depreciation that corresponds with its age at the time the donation is made. Car donations are a little different. The “blue book” value does not apply if significant repairs are needed, so the fair market value must be lowered accordingly. If f the car is valued at more than $500, Section A of form 8283 must be completed, and if it’s more than $5,000, Section B of that form must be filled out and accompanied by the signature of an authorized official from the charity. A written appraisal must also be submitted. IRS Publication 561, Determining the Value of Donated Property, should be helpful. In most states, you must transfer the title of the car to the charity.
3.) Only certain types of donations are permissible. Here are examples of donations that do not qualify for a tax deduction. You cannot deduct the value of the time volunteered to a qualified organization, but you can deduct out-of-pocket expenses associated with your service. Only a portion of the ticket price for a charity fundraising dinner can be deducted, unless specified by the organization, only the fair market value of the meal can be applied. If a charity gives you a thank you gift or any other benefit in connection with your donation, the value of that gift must be deducted from the amount that was donated. An advertisement in a charity’s special publication does not qualify for a deduction. These are some “Don’ts.” Check with your CPA for donation “Do’s.”
4.) Proper documentation of the donation is required. For all donations that are valued at $250 and more, the charity must provide written acknowledgement for your records. Bank statements, receipts that specify that a donation was made – including the amount, and written communications from the charity are acceptable for donations that are valued at less than $250.
Details are available at http://www.irs.gov/charities/contributors.