By: Clark, Campbell, Lancaster & Munson, P.A.
Q: During the Christmas season I donate money and toys to various organizations. Are these donations tax deductible?
A: Yes, in certain situations charitable donations are tax deductible; however, the situations in which an individual taxpayer may claim a deduction for such donations are relatively limited. As an initial matter, a charitable donation is the donation of money or property to an organization without the actual or anticipated receipt of a benefit. If a donation entitles an individual to merchandise, goods, or services, including admission to a charity ball, theatrical performance, or sporting event, the charitable donation is only that portion of the donation that exceeds the fair market value of the benefit received.
Charitable donations are tax deductible only if the individual taxpayer itemizes his or her deductions and only if the charitable donations were made to an organization that qualifies under Section 170(c) of the Internal Revenue Code. The IRS maintains a searchable database of qualifying organizations that may be accessed at http://apps.irs.gov/app/eos/. Furthermore, the amount of the tax deduction an individual taxpayer may claim for charitable donations in a given year is capped at fifty percent (50%) of the individual’s adjusted gross income. This cap is lowered to thirty percent (30%) of an individual’s adjusted gross income for charitable donations to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations.
Finally, most charitable donations must be substantiated. Donations of household items, such as toys, clothes, furniture, and appliances, worth $250.00 or more must be substantiated by a written acknowledgement from the charity receiving the donation. Such acknowledgement must include the name of the charity receiving the donation, the date of the donation, and a reasonably-detailed description of the items donated. Donations of money, regardless of the method of payment or amount, must be substantiated by a bank record or a written acknowledgement from the charity receiving the donation. Cancelled checks and bank, credit union, or credit card statements are generally sufficient to substantiate a donation of money. Due to these substantiation requirements, you should ensure that you obtain a written acknowledgement when you donate cash or significant amounts of property.
The January 1st edition of “The Law” will discuss gift certificates, credit memos and refunds. Questions may be submitted online to firstname.lastname@example.org.