Tax Rules on Charitable Contributions

As most people are aware, contributions to qualified not-for-profit organizations can be deducted on your income tax return. In order to get a tax benefit, however, you must have enough deductions to itemize rather than taking the standard deduction.

The IRS has some restrictions and guideline for charitable contributions. First, in order to take any charitable contribution, you must have a receipt from the organization, detailing the amount of the contribution and a statement that you received nothing in return. There is a new rule on this. Previously, any contribution of less than $250 did not have to be evidenced by a receipt. Now, a contribution of any amount requires one.   This also means that if you pay the church $10 for a book that you purchase from the church, this is not a deductible contribution, as you have received $10 in value in return. In short, you cannot take a deduction from which you receive a benefit.

Sometimes people will give money to an organization, designating it for a particular purpose. This can create problems for the organization and the donor. If the donor places “undue restrictions” on the use of the contribution, it cannot be treated as a deductible contribution. For example, you give a check for $100 to the church with the requirement that it be used to pay the medical bills of Joe Smith. This cannot be treated as a deductible contribution. On the other hand, the church has a benevolence fund and lets it be known that contributions for the fund are being accepted and they intend to assist Joe with his medical bills. If your contribution is to the fund, it is a deductible contribution.

Non-cash contributions are another issue that can create misunderstandings. When you give property to a not-for-profit organization, the organization’s tax responsibility is to give you an acknowledgement of the donation. For example, a receipt stating that you gave a 42-inch HDTV to church would meet the requirement. It is the responsibility of the donor to place a value on that contribution. The exception to this is if the donor gives a vehicle, airplane, or boat. In these cases, the organization must give the donor a Form 1098-C detailing the amount the vehicle was sold for. This would be the amount of your contribution. If the organization uses the vehicle in its ministry, the fair market value is used.

Contributions of property that have increased in value can yield the donor a large benefit. For example, suppose you own some stock that you purchased for $500. The stock has increased in price to $3000. If you sell the stock and donate the proceeds, you must pay tax on the gain. However, if you give the stock directly to the organization you get a charitable contribution for the fair market value of the stock and you do not pay tax on the gain.

In performing volunteer services for a charitable organization, you may deduct your mileage at the rate of 14 cents a mile. This rate is intended to cover the cost of your gas. You can also take a deduction for any out-of-pocket expenses that you incur in your volunteer services. You are not allowed to deduct the value of your services rendered to the organization. For example, assume you are an electrician and normally get $75 an hour for your services. You do some electrical work for the church and it takes two hours. You can deduct the cost of wiring, etc. that you use, but you cannot take a deduction for the $150 value of your services.

While your motivation for a contribution should not be the tax deduction you receive, if Uncle Sam is going to allow you to reduce your taxes as a result, you certainly want to take advantage of that opportunity.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

Facebook Twitter LinkedIn YouTube Skype 

Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.