Charitable Donations – Tax Return Basic Guidelines

Johnson Kendall Johnson (JKJ) firmly believes in “giving back” via charitable donations to various organizations. Whether it is autographed memorabilia, tickets to a fundraiser, or a straight cash donation, JKJ happily and whole-heartedly supports many philanthropic ventures and organizations. Charitable donations are a “hot item” around tax time but individuals and businesses should be aware that not all contributions and donations are tax deductible, and that there are IRS rules and guidelines to taking deductions for charitable donations.  Everyone would love to believe that that old junker of a car sitting in the back yard would reduce their tax liability by $1000, or whatever the value of the vehicle is at that time, but that is not necessarily the case.

The first general rule is that the donation must be made to an organization that is considered tax-exempt.  Giving that old vehicle to your family member in need or purchasing 10 boxes of Girl Scout cookies to eat is not considered to be a “charitable donation”.

The second general rule is to keep accurate records of your donations. Whether it be a cancelled check, a written letter from the organization acknowledging the donation, bank records, credit card statements, or some other valid documentation of the donation, it is extremely important to save these as proof of your donation in case of an audit.

Third rule of thumb when it comes to charitable donations is that you are only able to deduct charitable donations on your tax return when you itemize deductions.  If you generally take the standard deduction or the amount of your itemized deductions is less than the standard deduction, you cannot claim charitable donations on your tax return.

Another rule for charitable donations is that no money, goods, or services are to be received in exchange for the donation.  If an organization purchases tickets to a gala or dinner function, the tax deductible portion is the amount above the cost of the meal, in which case the organization will usually list that on the receipt or donation letter they give to you or your company. The qualified organization is required to provide written statement of breakdown of contribution vs. goods & services if amount is over $75.

Of course, charitable gifts and donations should be given to aid others who are in need or less fortunate but if the donation is going to benefit you or your organization in the form of reduced tax liability, one should take heed to the above  rules. There are other rules the IRS details as to what they will accept as tax deductible charitable donations, in which case, it is highly recommended to consult a tax professional  with any additional questions. For IRS details go to IRS.org and select publication 526 – Charitable Contributions.

Author: Alexisse Hobson, General Accountant

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