The Season of Giving

HBS Tax Preparation Services

Thanksgiving weekend is coming to an end.  As we finish the leftover stuffing, un-bandage our black-Friday bruises, and begin decorating for Christmas, let’s keep the spirit of the season alive and remember those whose holiday experience may be less than… well, merry. 

Helping others elevates your spirit.  It may also lower your taxes.  Today, I will revisit some basic tax questions regarding charitable contributions.  I will also consider the proof the IRS will require for you to deduct your donations.  My goal is to help you maximize your charitable deduction without running afoul of tax rules.

According to tax law, a charitable contribution is a donation of money or property to a “qualified organization.”  To qualify for the deduction, the contribution must benefit the organization, and not be set aside for any specific individual. 

To qualify as a charitable contribution you cannot receive anything of “tangible” value in return.  For example, if you purchase tickets to a charity dinner for $100 and the value of the dinner is $50, you can only deduct $50 as a charitable contribution.  If you give the organization more than $75 and receive any goods or services in return, the organization must give you a statement that breaks down the deductible and nondeductible portions of the gift. 

What is a “qualified organization?”  Qualified organizations include (but are not limited to) churches, synagogues and other religious organizations, public parks and government entities (if contribution used to benefit public), nonprofit schools, hospitals and volunteer fire departments, and not-for-profit public charities such as the Salvation Army and the Boys and Girls Club.  Other than churches and governments, most other organizations must apply with the IRS before they are considered “qualified”.  A searchable list of these organizations can be found at http//:www.IRS.gov or by obtaining publication 78 from the IRS. 

What proof will you need to substantiate charitable donations to qualified organizations?  Here is a quick rundown:
Contributions by cash and check:  Over the past few years, the IRS has tightened their stance on charitable “cash” giving.  Long gone are the days of deducting the “twenty” tossed in the church collection plate each Sunday.  If you donate cash you must have a receipt from the organization to claim the deduction.  Donations made by check, however, are easily substantiated with a cancelled check or bank statement.  But if you donate $250 or more to any organization in one day, a cancelled check will not be enough.  You will need a written receipt from the organization to prove your donation. 

Household Goods such as furniture, tools and clothing: This spring you may clean out your garage and closets, box household items you no longer use, bag clothes you no longer wear, and donate them to Goodwill or the Salvation Army.  To be deductible, these items must be in “good used condition.”  It is your responsibility to prove the value the “fair market value” (what the item would sell for at a yard sale or thrift shop) of each donated item.  Writing “three bags of clothes and two boxes of household items” on the yellow receipt will do little to help you substantiate your donation, if the IRS should question it. 

Consider taking the following steps to maximize and prove your noncash donations:  First, take a picture of the donated items.  This will help prove the items donated and their condition.  Second, list donated items on a sheet of notebook paper. And, finally, use a valuation guide (free at http//:salvationarmyusa.org or http//:goodwill.org) to estimate each item’s fair market value.  These records will also help you complete form 8283, “Noncash Charitable Contributions,” required if total noncash contributions exceed $500.

These are the basics of making charitable contributions. There remain, however, many different deduction limits and reporting requirements related to your income level, nature of donated items (such as vehicles or appreciated property), organization’s use of donation, and type of organization donated to.  If you find it difficult to navigate this maze of tax rules, don’t forego charitable giving or sacrifice the deduction.  Seek the assistance of a tax professional.

Brett Hersh's avatar
  • Author: Brett Hersh
  • Bio: Brett Hersh, EA, MBA, is the owner of HBS TAX & Small Business Experts. He is an Enrolled Agent (EA) with the IRS and licensed by the US Treasury Department to prepare all tax returns and represent taxpayers before the IRS for audits, collections and appeals. He is also Dave Ramsey’s ELP for Tax and Accounting, a continuing education instructor for tax professionals through Lorman Education, and a local speaker/presenter on the topics of tax and business growth. He can be reached at (304) 267-2594.