December 1, 2019

Planning on Making Charitable Contributions this Holiday Season?

peter alizio calendar icon at 2:01 AM

Will Your Donation Be Tax Deductible? 

Many taxpayers think that donating to any tax-exempt organization is tax-deductible. However, only contributions to specific tax-exempt organizations are deductible. §170 of the Internal Revenue Code does allow a tax deduction for charitable contributions but what are "Charitable Contributions"? 

§170(c) defines "Charitable Contribution" as a contribution or gift to or for the use of (I will stop us here as the section gets complicated). It would be difficult for an individual reading the tax code to determine whether a donation to a not-for-profit organization or tax-exempt organization is deductible without the help of a tax professional. Thankfully, the IRS rolled out Tax Exempt Organization Search (TEOS) an online tool allowing users to search for information about the exempt organization. Taxpayers may use TEOS to determine if a donation to a specific charity qualifies as a tax-deductible charitable contribution.  

How Much of Your Donation is Tax-Deductible?

Assuming you make a donation to a qualified organization, how much of this donation is deductible on your income tax return?  First, it is important to understand that receiving a tax benefit for claiming a charitable contribution is only available for those taxpayers who itemize their tax returns. Said another way taxpayers electing the standard deduction will not receive a tax benefit.

Did You Receive a Benefit or Something of Value? 

If you received a benefit or something of value in exchange for your donation than the amount of donation representing the FMV of goods or services received is not deductible.  Said another way, you may only deduct the amount of your donation that exceeds the value of any benefit received.

To illustrate: If you purchased two charity event tickets for $1,000 ($500 each) only a portion of the $1,000 will be tax deducible. If the FMV of goods or services being provided at the event is $150 per person/ticket than $350 a ticket is tax-deductible. In practice, the ticket might state how much of the purchase price is tax-deductible. Alternatively, the organization should mail letters to donors acknowledging the contribution and the value of goods or services provided.

I want to wish everyone a happy holiday and remember that making donations this time of year is not about the tax deduction(s) but about giving back and paying it forward.  HAPPY HOLIDAYS! 

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