Do Homework Before Making Year-End DonationsPDF
As the end of the year quickly approaches, you likely will join many other civic-minded Charlotteans in making charitable gifts. In these challenging economic times, your generosity is particularly critical to the success — and in some instances the survival — of local nonprofit organizations.
But remember to use care in claiming deductions associated with these gifts. The federal government has stepped up its scrutiny of income-tax deductions claimed by individuals in recent years. Following are a few simple strategies that may help you to avoid the headache and expense of an IRS audit:
- Due diligence: Before making a contribution to a nonprofit, you always should confirm that the organization is an active Section 501(c)(3) tax-exempt organization by checking IRS Publication 78 and the lists of recent additions and revocations (you can find these online at www.irs.gov). Note that some churches and other organizations that are qualified 501(c)(3)s are not listed in this publication. That's probably OK, but if you have any questions about an organization's status, call your tax adviser for confirmation.
For extra assurance, review the nonprofit's financials and program accomplishments on its more recent 990 forms (see www.guidestar.org). Not only will these steps help ensure your gift is deductible, but you will be supporting an organization that appropriately serves its charitable mission.
- Raffles: The price of a raffle ticket is not considered a charitable donation by the IRS and is never deductible for federal income-tax purposes, regardless of whether you win a prize. If you do win, of course, the value of the prize is taxable income to you. If the value of that prize is $600 or more, the organization conducting the raffle generally will request your Social Security number and issue you a form W2-G with a copy to the IRS.
- Special events: When you attend a fundraising event for a charity, the amount of your deduction generally is reduced by the value of the goods and services you receive from the organization during the event. What you may not know is that the tax-deductible amount of your contribution is reduced even if you don't attend the event (unless you return your ticket to the charity for resale in advance). If your goal is maximize your tax benefits, it may be best to decline the invitation to the gala, visit the nonprofit's website to learn more about its mission and projects, and then send a check.
- Voluntarism: Volunteers for nonprofits may deduct unreimbursed out-of-pocket expenditures such as mileage and other travel costs. Volunteers may not deduct the value of their time or services, even if the fair-market value of the services is readily ascertainable.
- Booster clubs: When you make a contribution to a school's athletic department in exchange for the right to buy game tickets, only 80 percent of your contribution is deductible for federal income-tax purposes.
- Contributions of property: In recent years, the IRS has closely scrutinized donations of vehicles to nonprofits. The better approach may be to sell the car, airplane or boat and donate the net proceeds to the nonprofit. However, vehicle donations should be distinguished from contributions of stock, real estate and other appreciated assets. The tax benefits from contributing appreciated assets likely is unavailable for vehicle donations — the clunker in your garage, slip or hanger most assuredly is worth less today than when you purchased it.
- Document, document, document: You are required to keep a canceled check, credit card statement or other contemporaneous proof of all contributions for which a federal income-tax deduction is claimed. This is true even for contributions under $250 for which charities have no obligation to deliver tax receipts to donors. It's up to you to request a tax receipt from the charity or otherwise maintain detailed records of your contributions. The IRS will accept nothing less.
- Dig deep: These points are intended to empower you as a savvy donor, not to dissuade you from making charitable contributions. Nonprofits in our community need your support now more than ever. In many instances, agencies are simultaneously experiencing increased demand for their services and a significant decline in available resources. Dig deep. This is your moment to shine.