If it hasn’t happened already, you’ll soon receive phone calls, emails and knocks on your front door seeking donations for a number of worthy causes — and quite possibly a few not-so-worthy causes solicited by scammers. Make sure you’re prepared for the holiday season of giving, not only for your protection, but also so you can get the proper tax benefits from your donation.The Virginia Society of Certified Public Accountants (VSCPA) offers these tips as you look to open your wallet in the coming months.
Follow these guidelines to know you’re giving to a legitimate charity:
- Look at charity review services and research online. The best ones are Charity Navigator, GuideStar and the BBB’s Wise Giving Alliance. Make sure that the charity is registered and legitimate. Many charities have similar sounding names and some use their funds better than others.
- Make sure that the money or goods that you are giving are going to an organization that hastax-deductible status and is a registered 501(c)(3) with the IRS, or is a church or religious organization. Things to watch for:
- Any organization that concentrates on political, lobbying and legislative activities is not deductible.
- Any organization that is a chamber of commerce, labor union or trade association is not deductible.
- If the organization is a for-profit school or hospital, the gift is not deductible.
- Donations to online fundraising sites, such as GoFundMe or GiveForward, are generally considered to be personal gifts to an individual rather than to a registered 501(c)(3) nonprofit organization and are not deductible. There are a few exceptions if it is given to a certified charity and in this case a tax-deductible receipt will be provided.
- A nonprofit’s lottery, bingo and raffle tickets that you purchase are not deductible.
- Time spent volunteering is not deductible.
It’s paramount to keep accurate records. Follow these steps to make sure you’re prepared for tax time:
- There must have documentation of all cash contributions — even for a $1 donation —- in order for it to be deductible. No receipt means no deduction. What qualifies as documentation:
- Keep the actual cancelled check (for donations less than $250)
- Bank statement or record
- Credit card statement
- If giving at a store checkout, save the receipt from the store as they will typically write the cause and amount
- Receipts or letters issued by the charity are required for all donations more than $250 and must be in your possession before filing your tax return.
- It is important that the letter state very clearly the organization name, the date and amount of the donation, and it must declare whether or not any good or services were provided in exchange for the gift. There is no deduction without the proper language.
- If there is something received in return for a donation, you can only deduct the amount that is over and above the fair market value (FMV) of the merchandise, goods or services that have been provided. Most legitimate organizations provide these amounts in the letters you receive. This does not include free, unordered items from a charity or token gifts that bear the charity’s name (considered insubstantial gifts).
- Non-cash donations also require an acknowledgement. Typically, you have to determine of the item’s FMV. Substantiation of the goods donated could include the following:
- List of the goods donated and the condition of the items (must be in “good” condition or better).
- FMV (usually thrift shop value) of the used items. Valuation guides can be found online. If filling out U.S. Internal Revenue Service (IRS) Form 8283, you will need the original purchase price and/or original date of purchase and how it was acquired.
- Any item that is worth more than $5,000 must be appraised professionally in order to make a claim. Keep a copy of this appraisal.
- If donating a car, truck, boat or airplane worth more than $500, a written acknowledgment and 1098-C from the organization is required before the deduction can be taken.
- If your non-cash donations are valued at $500 or more, a Form 8283 Non-Cash Charitable Contributions must be filled out and attached to your tax return.
- Travel to and from donation locations, as well as miles driven during volunteer work, are also deductible at 14 cents per mile.
- For a donation of publicly-traded securities, the high-/low-average market price on the date of transfer to the charitable organization is considered the FMV.
Turn to a CPA
A CPA can help with any questions about donations and tax advantages of donations. He or she can also offer practical advice and realistic solutions for a wide range of financial giving and planning concerns.