It’s the time of year again where everybody’s thinking about giving. Most of us are thinking about what we are going to get for our loved ones to mark the holidays. In the midst of the heavier-than-normal mail, there are typically one or more requests to give to charity. Why? Everybody is in a giving spirit, many of us want to do more than focus on material things, and the sentiments of the season make us reflect on those who are less fortunate. The other reason is that charitable organizations understand that these donations are tax deductible, and they want to make sure that they are not forgotten in the end of year plans for individuals and businesses who are able to donate.
So you might be wondering “if I can save on taxes, what’s deductible?” The IRS has a whole publication on the topic, which gets into the gory technical details, but for most people, there are some fairly simple things to look out for. In general, money you donate to your church or synagogue is deductible, as are donations to nonprofit schools or hospitals, organizations such as United Way, Boy Scouts, Girl Scouts, Salvation Army, Red Cross, to name a few. You can also deduct out of pocket expenses that you incur when you are volunteering for one of those organizations. So, maybe you have kids and you volunteer for the Boy Scout or Girl Scout Troop. You can deduct the mileage to and from the meetings, the cost of supplies that you bought for the troop, and the money you donated to them. Maybe your kids are older, and one of them is part of an exchange program sponsored by a qualified tax exempt organization. Did you know that money that you spend to host and care for the exchange student is deductible?
Clothing and household items are something that is frequently donated. We all have too much stuff and periodically weed it out! Clothing is deductible at the fair market value (what it would sell for on consignment or in a thrift store) as long as it is at least in good used condition. Electronics, appliances and linens are also deductible. Make sure you keep a list of everything you donated, where it was donated, and the fair market value of the items. In this case, documentation will definitely pay off! It will be next to impossible to remember everything that was in that bag of stuff you dropped off, and certainly not what condition it was all in or what it was worth!
The bottom line is that documentation wins the game. You can’t deduct it if you don’t remember it, and let’s face it, most of us can’t remember what we did last month, much less 12 months ago! If you are going to drop money into the offering plate in church, do a little pre-planning and take a check. That way you have a record of the donation and a tax writeoff.
On the flip side, not everything is deductible, even if it goes to one of those organizations. Here’s a great example. I am on the Board of Directors for our local United Way. This month I have been tasked with selling 20 raffle tickets for $20 each, for a grand prize of $1,000 at the grocery store. It might be a little easier to sell them if they were tax deductible, because…they’re not! The IRS specifically excludes the cost of raffle, bingo, or lottery tickets. Another example is the value of your time. As a CPA, I can and occasionally do, bill by the hour. However, if I choose to donate 10 hours of my time to help an organization straighten out their financial records, I can’t deduct the value of that time. Before you give away your time or money, make sure you understand whether or not the donation qualifies for a tax deduction. For sure there are cases where it just doesn’t matter, but knowing that before the fact is more pleasant than finding out that your good deeds don’t count at tax time!
If you have questions about other specific scenarios, please feel free to comment below or contact me.