Charitable Contributions to qualified organizations can be deducted from income by taxpayers who qualify to itemize their deductions (versus taking the standard deduction). However, it is important to understand the basic rules related to charitable contributions when considering such a donation. Below is a highlight of three of the most important issues at play when making donations to charities. They are grouped into the following categories: (1) Defining Qualified Organizations, (2) Non-Deductible Contributions, and (3) Substantiating Your Charitable Contributions.
Defining Qualified Organizations. A qualified organization is any one of the following:
- A state or United States possession, or the United States or the District of Columbia, if made exclusively for public purposes;
- A community chest, corporation, trust, fund, or foundation, organized or created in the U.S. or its possessions, or under the laws of the U.S., any state, the District of Columbia or any possession of the U.S., and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
- A church, synagogue, or other religious organization;
- A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the U.S.;
- A non-profit volunteer fire company;
- A civil defense organization created under federal, state, or local law;
- A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
- A non-profit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetary as a whole and not a particular lot or mausoleum crypt.
How to Check Whether an Organization is Qualified:
- Ask any organization whether it is a qualified organization, and most will be able to tell you.
- Go to www.irs.gov. Click on “Tools” and then on “Exempt Organizations Select Check.” This online tool will enable you to search for qualified organizations.
- Call the IRS at (877)-829-5500 to find out if an organization is qualified.
Substantiating Your Charitable Contributions. The Internal Revenue Service requires taxpayers to keep records proving the amounts of charitable contributions made during the year. The kinds of records required to be kept depends on the amount of your contributions and the type of contribution. In general, charitable contributions fall into one of the following categories: (1) Cash Contributions, (2) Non-Cash Contributions, or (3) Out-of-pocket expenses upon donating your services. A brief discussion of the required documentation for each type of charitable contribution follows.
Non-Deductible Contributions. Contributions made to specific individuals are not deductible. This is true even if the individuals are needy or worthy or members of the clergy that can be spent as he or she wishes. Additionally, contributions to fraternal societies made for the purpose of paying medical or burial expenses of members are not deductible. Finally, expenses paid for another person who provided services to a qualified organization are non-deductible contributions.
- Cash Contributions – These types of contributions include those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction. In order to deduct a charitable contribution made in cash, taxpayers must keep either a bank record, receipt, or a payroll deduction record that shows the name of the qualified organization, date of the contribution, and amount of the contribution. Contributions of $250 or more require additional records including a written acknowledgment of your contribution from the qualified organization.
- Non-Cash Contributions – Substantiating these types of contributions requires a written receipt showing the name of the qualified organization, the date and location of the contribution, and a reasonably detailed description of the property. Non-Cash Contributions in excess of $500 require additional written documentation.
- Out-of-pocket expenses upon donating your services – Substantiating these types of contributions requires a bank record or receipt showing the date and amount of the expense, as well as, the name of the entity to whom the expense was paid. Finally, a taxpayer must maintain a copy of the agreement with the qualified organization for who the services were provided.