With the holidays approaching, it's time to think about giving. Not just to family and friends, but to charitable organizations that qualify for tax deductions1 on your tax return. If you itemize your deductions on Form 1040, Schedule A, you can deduct contributions to qualified organizations, including religious, charitable, educational, scientific, and literary groups.
Here are some questions you'll want to ask before you give:
- Is it qualified? To qualify for a deduction, the organization must be "qualified" under IRS guidelines. This generally means that it holds a 501(c)(3) charitable tax-exempt status. If you are unsure, ask the organization, or see if it's listed on the IRS list of qualified organizations.
- Is it deductible? You cannot deduct contributions made to individuals. You also cannot deduct the value of your time or services. For example, if you volunteer several hours per week for a charity, you cannot deduct any amounts for your time. See IRS Publication 526 or additional restrictions.
- How much can you deduct? If your contribution entitles you to a gift for donating (e.g., a gift item, a dinner, theater tickets, etc.), you may only deduct the amount that exceeds the fair market value of your gift. Check with the organization to see how much of your contribution is tax deductible.
- What's the fair market value? In addition to deducting your cash contributions, the IRS lets you deduct the fair market value of property you donate to qualified organizations. There is no specific formula that applies when valuing property. Instead, your valuation must take into account all the facts and circumstances connected with the property. And if you claim a deduction of noncash property worth more than $5,000, you'll need a qualified appraisal of the property and must fill out Form 8283, Section B. See Publication 561, Determining the Value of Donated Property.
- What about large contributions? For contributions of $250 or more, you will need to get written acknowledgment from the organization indicating the amount contributed, or in the case of donated property, a description and estimated fair market value of the property. The acknowledgment should say whether you received any goods or services in exchange for the donation and, if so, a good-faith estimate of their value.
However much you give, make sure to get a receipt. You'll need this for your tax records and in case you are ever audited. The receipt should contain the name of the organization, the date of the contribution, and the amount of the contribution.
For more information on the tax deductibility of charitable donations, see IRS Topic 506 - Charitable Contributions.