Disclaimer: The content is drawn from a variety of sources, including (but not limited to) articles, Internal Revenue Code and Regulations, Court cases, articles, and other unofficial resources.
These are usually no-brainers – deduct what you gave. Well, not necessarily. There are some rules that you need to remember:
- All charitable gifts must be gifts, i.e., the donor gets nothing in return. If the donor gets something in return, the deduction is limited to the amount the contribution exceeds the value of the gift. Example: Tickets to a charitable fundraiser cost $100 each. The attendee receives a nice dinner which has a value. So, the deduction is $100 less the value of the meal. Catch: The charity must provide a receipt that spells out the value of the gift – no receipt, no deduction (because the taxpayer can’t verify the value received, neither can they verify the gift amount).There are exceptions. If the donor receives something of only nominal value, it can be ignored. However, the charity must provide written documentation that nothing of value was received in return for the gift.
- Bingo and raffle tickets are not a gift. Payment to play is a gambling cost even though the event activity is to raise funds for the charity. Don’t forget: When you win, that’s a taxable event!
- Any single donation of $250 or more requires a written receipt from the charity; a cancelled check isn’t enough. The receipt needs to be in the taxpayer’s possession prior to filing the return. No receipt, no deduction.
- Don’t forget donations made from payroll. The W-2 usually does not show these. You will need a year end paystub for proof. Also, if each payroll deduction is less than $250, then the written receipt rule doesn’t apply.
- A deduction for up to $50/month for a student living with the taxpayer if there is a written agreement between the taxpayer and the qualified organization. A month can be as little as 15 days. This is usually for foreign exchange students.
- Out of pocket expenses for services provided to a charitable organization. Expenses don’t include the value of the taxpayer’s time. Typical costs include use of a car to provide the service, which can be gas & oil or 14 per mile. This mileage is not subject to the commuting rules. Expenses can include attendance at a conference where attendance is based on being a representative of the charity. Expenses include the conference fee, lodging, and meals (at 100%), airfare, etc. Caution: Miles to deliver noncash contributions to a charity are not a charitable expense because such trips are not made on behalf of the charity. These trips would be part of the cost for determining the tax liability, same as for tax preparation cost and tax software (a deduction subject to the 2% of AGI limitation, now suspended for 2018 – 2025).
- Gifts to individuals are not deductible. Gifts must be to a qualified charity. GoFundMe type fundraisers don’t count since those organizations are not charities.
- Qualified Charitable Distribution [QCD]: A distribution from an IRA that is an RMD made directly to a qualified charity satisfies the RMD requirement and the distribution will not be a taxable distribution. A 1099-R will usually be issued; software should provide a method of marking the distribution as a QCD. Caution: The IRA beneficiary must be 70 ½ or older on the date of the distribution to qualify for this benefit.
IRS Pub 526 is your best resource for these and other requirements and limitations.
Chuck became a tax preparer in 1976 and an Enrolled Agent in 1981. Chuck specializes in trust and estate tax returns. He served as a QA team member for Intuit on multiple professional tax software programs. Chuck has been writing curriculum and teaching taxes to the pros since 1978.