Donations are Not Always Deductible

picture of someone in white sweather holding out crumbled euro dollars
Photo by Christian Dubovan on Unsplash

Under the new tax law, donations to a qualified charity are still deductible for taxpayers who itemize their deductions using IRS Schedule A. Taxpayers who take the standard deduction because it is higher than itemizing don’t get a tax benefit from their giving.

Based on the tax returns I’ve prepared so far this season, taxpayers have not changed their level of generosity, but they don’t always know when their giving could be deductible. There’s a lot of confusion about the meaning of terms like “qualified charity” and “donation”. To help clarify, this week’s blog is dedicated to charitable donations and when they are – or are not – deductible.

What is a Qualified Charity?

Qualified charities include humanitarian, religious, educational, scientific, and cruelty-prevention organizations. Crowd funding, political contributions and association dues are not included. Except for religious organizations, qualified charities must apply for and be granted Tax Exempt Status by the IRS. Tax Exempt organizations have annual IRS reporting requirements. A list of qualified charities is posted in the IRS’ “Tax Exempt Organizations Search” tool at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search.

What is a Donation?

Donations can be financial or non-financial items such as clothing, household goods, vehicles, stock, or real estate. Financial donations to a qualified charity are a deductible, reduced by the value or anything received in exchange, such as a meal. In general, clothing and household items can only be deducted if they are in good usable condition. The deduction amount is based on the “thrift shop” value. Donated vehicles, art work and other non-financial donations valued at more than $500 are subject to more rules and limits.

What Donations are Deductible?

Financial and non-financial donations must be acknowledged contemporaneously in writing by the charity. Acknowledgements reflect which organization received the donation and when to support any deduction taken. Donations of $250 or more must be supported by a letter from the charity stating the date and amount of the donation, the charity’s reduced by the value of anything in received by the donor in return, such as a fundraising dinner.

Many taxpayers continue to donate to charity, whether it’s deductible or not. Knowing what donations qualify for a deduction helps maximize those tax benefits that are still eligible under the new tax law.