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Donating to Charity?
Susan B. Queary, MAcc, CPA
Principal and Director, Estate Planning Services
September 08, 2009
It's been said that one person can make a difference and every person should try. At a time when the demands on our charitable organizations are up and contributions are down, even small donations of money, clothes, or household goods make a difference.
Although such good deeds are generally their own reward, the federal government offers an additional benefit with an income tax deduction for most charitable donations. If you contribute to charity and itemize deductions on your tax return, you may be able to deduct the amount of cash or the value of property that you donate.
Deductible and Nondeductible Contributions
To be deductible, your charitable contribution must be made to or for the use of a qualified organization. Generally, that means an organization operated for one or more of the following purposes: religious, charitable, educational, scientific, literacy, or prevention of cruelty to children or animals.
You can deduct any unreimbursed out-or-pocket expenses you incur in making a contribution to charity, including expenses related to donated time or services. That includes expenses related to the use of your car, such as gas and oil―or a standard mileage rate for charitable purposes. You can also deduct the cost of any appraisal fees required to support your charitable deduction, but only as a miscellaneous itemized deduction.
You cannot deduct the value of the time or services you contribute to a charitable organization. Also, you generally cannot claim a deduction for clothing and household items that are not in good used condition or better.
If you receive merchandise or other goods or services in return for your contribution―such as a shirt or a ticket to a charity event, performance, or major-league game―the amount of your deductible contribution is reduced accordingly. Your deductible contribution is equal to the value of your contribution less the value of the goods and services you receive. If you purchase goods or services from a charity at more than fair market value, the excess is also a deductible contribution.
Recordkeeping Requirements
To support your charitable donation for tax purposes, you'll need some form of written documentation. In most cases, the charity that receives your donation is required to provide you with written documentation that includes all information required to claim a tax deduction. This required information depends on both the amount and form of your donation.
 Cash Donations
You need some form of document to support your cash donations―such as a cancelled check, bank statement, credit card statement, or a receipt provided by the charity―that includes the charity's name and the date and amount of the contribution.
For a single donation of $250 or more, you must have a written document from the charity that includes the name of the charity, the date and amount of the donation, whether you received goods or services in exchange, and a good-faith estimate of the value of any goods or services received. You must get this statement from the charity by the extended due date of your return―or the date you file your return, if earlier.
If your charitable donation is made through a payroll deduction, you can use a pay stub, W-2, or other employer-provided document to support your donation. However, if the charitable deduction from any single payroll period exceeds $250, you'll also need a statement from the charity indicating whether you received goods or services in return.
Special Rules for Cash from an IRA
For 2009, if you're age 70 ½ or older, you can make a charitable contribution as a direct transfer of up to $100,000 from your traditional or Roth IRA. The charitable distribution qualifies as a required minimum distribution for a traditional IRA.
To support the charitable deduction, you'll need a written document from the charity that includes the date and amount of the charitable contribution, the IRA custodian, and a statement that no goods or services were provided in exchange.
Noncash Donations
For charitable contributions of property, you must be able to substantiate the fair market value of the items.
If the value of your donated property is less than $250, you'll need a written document from the charity that includes your name, the date and location of the donation, a detailed description of the property, and estimate of the fair market value and how the value was determined. In cases where that is not possible―for example, if you leave your donations at an unattended collection site―you should keep your own written records that include the same information, plus an estimate of the value of the property.
If the value of the property is at least $250 but not more than $500, you'll need a written acknowledgement from the charity that includes your name, the date and location of the donation, a detailed description of the property, whether there were any goods or services provided in return and, if so, an estimate of fair market value. The documentation must include a separate acknowledgement for any single item worth $250 or more. You must get the acknowledgement from the charity by the extended due date of your return―or the date you file your return, if earlier.
If the value of the property is more than $500, your records must also include information regarding how you acquired the property, the approximate date you acquired it, and the cost or other tax basis.
If the total value of the donated property is more than $5,000, you'll also generally need to obtain a qualified appraisal of the property.
Donations in Return for Goods and Services
If you contribute money or property worth more than $75, and receive goods or services in return, the supporting document you receive from the charity must include a good-faith estimate of the value of those goods or services.
Special Rules for Donating Automobiles, Boats, and Planes
There are special requirements if you donate your personal motor vehicle, boat, or airplane to charity and it is valued at more than $500. Under these circumstances, the IRS requires that the written acknowledgment you receive from the charity must include: your name and taxpayer identification number, the vehicle's identification number, and certain additional information, depending on the use or disposition of the vehicle by the charity.
The acknowledgment must be provided to you within 30 days of the sale, if the charity sells the vehicle in an arm's length transaction to an unrelated party. It must be provided within 30 days of the contribution, if the charity certifies that the vehicle won't be transferred before the completion of "material improvements or significant intervening use," or the charity certifies that the vehicle will be "transferred to a needy person at a price significantly below fair market value".
Limitations
You can generally deduct the full amount of the charitable donations you make in cash, up to 50 percent of your adjusted gross income (AGI). For donations of property, the maximum is reduced to 30 percent of your AGI. However, if the property includes appreciated capital gain assets, the limit is 20 percent of AGI.
If your deduction in any year is limited based on your income, you can carry over the excess charitable deduction for up to five years.
For higher-income taxpayers, another rule impacts the amount of itemized deductions―including charitable deductions―that you can claim on your return. For 2009 if your adjusted gross income exceeds $166,800 ($83,400 for single filers), your charitable deduction may be reduced.
For More Information
To learn more about the federal income tax rules for deducting charitable contributions, you can refer to IRS Publication 526 Charitable Contributions, available online at http://www.irs.gov/publications/p526/ar02.html#en_US_publink100049607.
The IRS provides an online search of organizations eligible to receive tax-deductible contributions at http://www.irs.gov/app/pub-78/.
The IRS provides additional guidance for determining the amount of the deductible contribution in Publication 561 Determining the Value of Donated Property, available online at http://www.irs.gov/publications/p561/ar02.html.
The Salvation Army has an online valuation guide for donations at http://www.salvationarmyusa.org/usn/www_usn_2.nsf/vw-dynamic-arrays/D477340FFA28755C8525743D0049D1EF?openDocument&charset=utf-8
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