This is the second part of a 3-part series about Deducting Charitable Donations. On the last post, we’ve talked about the various qualified organizations (organizations that meet the IRS qualification requirement for your contribution to be deductible).
Part 1 â€“Â Qualified Organizations – You can only deduct donations if these are made to qualified organizations. Also discusses organizations that are not qualified by the IRS.
Part 2 â€“Â Items You Can Deduct â€“ Discussed the items that you can or cannot deduct and the various reporting requirements.
Part 3 â€“Â Limitations on Your Contributions â€“ discusses on how much donations you can deduct for the yea
On this section, we will be discussing the items that you can or cannot deduct on your tax return and the reporting requirements to substantiate those charitable donations.
1.Money or monetary equivalents – includes cash, check, credit card, electronic fund transfers or payroll deduction. You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following:
- Bank record that shows the name of the qualified organization, the date of the contribution, and the amount. Bank records may include canceled check, a bank statement, or credit card statement.
- A receipt (or letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount
- For payroll deduction, you must keep a pay stub, w-2 form or other document furnished by your employer that shows the date and mount of the contribution and a pledge card or other document prepared by of for the qualified organization that shows the name of the organization.
2.Clothing and household items – in general, you cannot deduct the value of clothing or household items you donated unless these items are in good used condition or better. However, you may be able to deduct an item of clothing or household that is not in good used condition if you deduct more than $500 for it and include a qualified appraisal of it with your tax return. Examples of household items are furniture and furnishings, appliances, electronics, bed and linens, etc.
3. Car ,Â Boats and airplanes – If your claim is more than $500, you can deduct the smaller of the gross proceeds from the sale of the vehicle by the organization or the vehicle’s fair market value on the date of the contribution. For example, if you donated a car that has a Kelly Blue book value of $5,000 and the organization sold your car for just $2,000, you can only report $2,000 on your tax return and not the $5,000 amount.
- Reporting Requirement – you must attach to your return Copy B of the Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes (or other statement containing the same information as Form 1098-C). This form will show the gross proceeds from the sale of the vehicle. If you e-file your return, Â you must attach Copy B of Form 1098-C to Form 8453 and mail the forms to the IRS. If you do not attach Form 1098-C (or other statement), you cannot deduct your donation.
4. Out-of-pocket Expenses For Volunteer Work – You cannot deduct the value of your services to a qualified organization but you may be able to deduct some expenses when you incur them in providing services to a qualified organizations. The amounts MUST BE unreimbursed, directly connected with the services, expenses you have to incur because of the services you provided and items must not be personal, living or family expenses. Below are a few examples:
- Uniforms – you can deduct the cost and upkeep of uniforms that are not suitable for everyday used and that you must wear while performing donated services for a charitable organization. For example, you are a retired nurse and you bought a medical scrub to do volunteer work, the cost of scrub is deductible. Other uniforms that are not suitable for everyday used are mechanics uniform, painter or carpenter, etc.
- Car Expenses – you can deduct the cost of gas or oil that you incur while providing services to a qualified institution. Just like with the unreimbursed employee expenses, you can use the actual expenses or the standard mileage rate, which is 14 cents per mile. You cannot deduct the general repair and maintenance expenses, depreciation, registration fees or the cost of insurance and tires when using the actual expense method. However, you can deduct the cost of parking or toll fees whether you use the actual or standard method. You must keep reliable written records of your car expenses and mileage record.
- Travel – in general, you may be able to deduct the cost of travel you incurred while you are away from home conducting volunteer services for a qualified organization and only if there is no significant element of personal pleasure, recreation, or vacation in the travel. These expenses include transportation fare, out-of-pocket cost for your car, lodging cost, and meal expenses.
Donations You Cannot Deduct
Contributions that benefits you – if you receive or anticipate to receive a financial or economic benefit from your donations to qualified institutions, then you cannot deduct the part of the contribution that represents the value of the benefit receive. Examples are cost of raffle tickets, bingo, lottery, contributions for lobbying, tuition, or payment of medical expenses.
Value of Time or Services -Â You cannot deduct the value of your time or services. This includes blood donations to the Red Cross or blood bank and the value of your income lost while you work as an unpaid volunteer for qualified institution. For example, if you are an accountant getting paid $30 an hour and you volunteer to do bookkeeping at a church for a total of 300 hours for the year, you cannot deduct $9,000 on your tax return.
Reporting Requirement for $250 or More Contributions
You can only claim a deduction for a donation of $250 or more if you have an acknowledgement of your contribution from the qualified organization or certain payroll deduction records. If you made more than one contribution of $250 or more, you must have either a separate acknowledgement of your contribution or one acknowledgement that lists each Â contribution and the date of each contribution and shows.
When determining if your contribution is $250 or more, do not combine separate donations. For example, if you donated $30 to your church every week, your weekly payments do not have to be combined. Each payment is a separate contribution. If contributions are made by payroll deduction, the deduction from each paycheck is treated a a separate donation.
The acknowledgement must meet the following criteria:
1. It must be written.
2. It must include:
- the amount of cash you contributed
- Description of good faith estimate of the value of any goods or services
- Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits)
- A statement that the only benefit you received was an intangible religious benefit , if that is the case. The acknowledgement does need to describe or estimate the value of an intangible religious benefit.
3. You must get it on or before the earlier of the date you file your return for the year you make the contribution or the due date, including extension for filing the return.
Source: IRS Publication 17.