Charitable Giving: What You Can And Can't Deduct

Don't assume everything you've donated is tax deductible. It isn't.

posted December 1, 2017 in Blog

The only way your donation is tax deductible is if the recipient is a 501(c)(3) organization, or a registered public charity. It’s not enough that an organization is a not-for-profit, tax-exempt entity. Your donation needs to be to a registered public charity in order for you to be able to claim a deduction.

Often, a charitable organization will thank its donors (or encourage them to give in the first place) by providing a gift, dinner or premium. The value of whatever you receive in return for your donation should be deducted from the amount you claim on your tax return. While an iPod or similar product might be easy to put a dollar amount to, other gifts, such as a dinner you attend, are not so easy to evaluate. Instead, ask the organization to provide you with a letter stating the value of anything you’ve received from them.

Many charities solicit donors for not only cash, but cars, boats, stocks and bonds, furniture, and any other goods that have market value. If you’ve donated non-cash items, you can’t just decide what they’re worth. Instead, you need to establish the fair market value, meaning what a buyer would pay for them. If the item or items you’re donating has a value of more than $500, it must be professionally appraised. If it is under $500, you’re on your own, but remember that the replacement value is not what you’re looking for, but actual market value. Clothing and household items must be in good condition if you want them to qualify for a tax deduction. The value of a donated car is determined not by the Kelley Blue Book or NADA Guide, but by what the charity sells it for.

For stocks (and other financial products) you can deduct 100% of what that stock is trading for on the day of your donation. This is a great deal if you have a security that appreciated significantly since you purchased it. By donating the security (rather than selling it and donating the money) you’ve bypassed capital gains tax and can still claim the full amount as a tax deduction.

Keep receipts for everything you’ve donated, and never give cash, which is hard to track or show proof of if you are audited.

Ready to make your end-of-year donations? Check out GiveIowa, a local community giving program. Each month, two non-profit charity organizations are selected to receive $500 each - and then allow anyone - to add their support through crowdfunding. What's even better? You will be provided a receipt to use for tax deduction purposes! Happy giving!

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