Regrettably, not all donations made to non-profit organizations are tax deductible. That’s why it’s important to understand the complexities of charitable giving.
Not All Donations Are Considered Equal:
While your heart may be in the right place, not all donations can be used as a tax write-off. The organization must be classified as a 501(c)(3) foundation to qualify. This information will be readily available on a charity’s website.
In most cases, you cannot claim a donation if you receive something in return. That is unless you overpay for the item’s value. For example, if you layout $100 at a charity auction for a bottle of wine valued at $25, then you can write-off the extra $75 above value. According to the IRS, you must be able to prove you knew the value of the item was less than what you paid. Most fundraising auctions clearly label an auction item’s fair market value, as well as provide paperwork afterward to document your donation/purchase.
Similarly, there are guidelines to follow if you donate what the IRS considers non-cash items, such as a car, boat or artwork, among many other things. Visit the IRS website for specifics on determining the fair value of your gift and how to itemize it on your tax return.
Keeping A Record Is Key!
Following your donation, the second most important thing to do is keep receipts and records of your contribution. Usually, a charity will mail you a formal tax acknowledgment following your payment.
If you donated a physical gift, then you should also receive paperwork citing the item’s value. Under certain circumstances, you may have to first obtain a certified appraisal of your item.
Of course, be sure to keep your receipts safe and stored where you can easily find them for tax reasons. Your kind donations can be a win-win. It can help your favorite causes, as well as aid in lowering your annual income on your tax return.