The Basics of Charitable Giving

Donating time or money to your favorite charity can be rewarding on a personal level. But come April 15th, don’t overlook the opportunity to reap tax benefits as well.

Your donation may qualify for a tax deduction, if the type of giving and the recipient of your gesture meet tax law criteria. But that alone won’t land you a deduction, if you don’t itemize. As it stands now, current tax law allows only taxpayers who itemize to deduct their charitable contributions.

Also, not every non-profit organization is deductible-worthy. Contributions to a “tax exempt” organization, a non-profit organization that generally does not have to pay taxes, are not necessarily deductible. If in doubt, ask the group whether your contribution is “tax-deductible.”

But if you do itemize and give to a qualified charity, there are certainly tax deductions to be found in your donation of time, goods and/or money. Here’s how it works:

• Cash Contributions:When you give direct financial support to a charity, it’s considered a cash contribution regardless of your method of payment. This includes any donation you make in the form of cash, check, credit card or payroll deduction. Also in this category are out-of-pocket or car expenses you incur while donating your services. If you contribute to a charity and also receive something, such as dinner or a tote bag, then your deduction is the amount you paid minus the value of the goods or services received.
• Volunteer Time:There is no direct deduction for the time or services you donate to charity work. For example, if you’re a graphic designer who spent hours on the church newsletter, you can’t deduct your professional hourly fee. But, you can deduct 14 cents a mile for the distance you traveled to the charity site, or you can deduct your actual expenses, such as gasoline. If you donated any supplies or food during that volunteer work, you can deduct the cost of those.
• Goods:On new items, you can deduct the purchase price. But the amount of deduction for used goods, such as clothing, household goods, furniture or other non-cash items, isn’t as straightforward. It’s based on the item’s “fair market value”. While you want to be sure not to overestimate what something might be worth (watch out for sentimental pricing), you also don’t want to underestimate. Many taxpayers underestimate the value of their contribution because they don’t know how to assign accurate fair market values to their donation. To better determine value on your donated items, you might want to visit the thrift store where your donation will be sold to check out prices, or look at the IRS’s list of approximate values of commonly contributed items at www.irs.gov.

Additional information on charitable contributions can be found in IRS Publications 78, 526 and 561.