The IRS allows a deduction for charitable contributions made during the tax year to qualified charitable organizations. However, understanding how and when a charitable contribution is deductible can be confusing. Commonly asked questions include such topics as what is deductible as a contribution, how are the deductions claimed, and what documentation is required.
Cash and certain noncash donations made to qualified charitable organizations are deductible. Cash donations include cash or check payments made directly to the organization as well as online donations made by credit card. Donations made by text message and payroll deduction are also deductible. Non cash donations include items such as clothing and household items donated to organizations like Goodwill and Saint Vincent De Paul etc. Shares of stock, vehicles, and real estate are additional examples of noncash contributions. An allowance of .14 cents per mile is deductible for travel related to charitable organizations. However, the value of your time spent volunteering for a charity is not deductible. Items the donor benefits from such as the cost of raffle tickets, event tickets, and lobbying are not deductible. Contributions made to individuals are also not deductible.
Charitable donations are only available to those taxpayers who itemize their deductions rather than utilize the standard deduction. The amounts must be deducted in the year contributed but can be carried over to future years if the total contributions are more than the annual deductible limit. The amount deductible in any given year cannot exceed 50% of the taxpayer’s gross adjusted income and begins to phase out once a certain adjusted gross income is reached. For 2015 the phase out amount was $309,900 for married filing jointly and $258,250 for singles. There are some additional restrictions on certain non-cash donations and donations to private foundations.
Documentation for all contributions must be kept to substantiate all deductions. The type of documentation varies depending on the type and amount of the contribution. For cash donations under $250 a receipt detailing the charitable organization and the date and amount of donation is acceptable documentation. This can include a bank or credit card statement, a receipt from the charitable organization, payroll deduction records, or phone bill for text donations. For cash contributions of $250 or more a written letter of acknowledgement from the charitable organization is required. The letter should detail the amount of the contribution(s) and include whether or not any goods or services were received as a result of the contribution such as raffle tickets, memberships, etc. Without this letter the contribution will be denied by the IRS in the event of an IRS review even if you can otherwise prove the donation was made. A record of items donated as a noncash contribution should be kept including a description and estimated fair market value at time of donation. Noncash contributions of $500 or more are reported on a separate schedule and additional details related to when and how the items were originally obtained as well as the cost basis are required. Noncash donations of $5000 or more require a written acknowledgement and a qualified written appraisal of the property value. There are also additional requirements and rules with regards to donations of vehicles.
This is only a brief overview of how and when contributions can be deducted. Other rules apply and vary for each tax payer. As always, if you have questions or concerns we recommend you contact your trusted financial and tax advisors about your individual situation.
Michelle is a Staff Accountant at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Michelle welcomes any article feedback or questions for future article consideration.