When can I deduct that gift?

December 12, 2014 by Chris Rubino
The Grinch

The holiday season is a time for giving, but if you don’t follow the carefully prescribed rules for charitable giving, the IRS may become the Grinch that disallows your deduction. So here’s how to keep the Grinch away from your tax return.

First and foremost, you must give to IRS recognized charitable organizations. As much as you might love and regard your spiritual leader, such as a minister or rabbi, any gift given directly to them is considered a personal gift, and not deductible. From a tax standpoint, you should give directly to your church or synagogue rather than to a specific individual or member of the congregation.

The gift must be in cash or goods, and it cannot be for your time. Let’s say you want to help feed homeless folks on Christmas Day, so you donate $50 and volunteer two hours of your time to serve Christmas lunch at the shelter. The $50 to the organization is deductible, but the two hours of your time is not.

Make sure that you get a receipt or have a record of the donation. That $100 bill dropped into the Salvation Army kettle? Probably not deductible on examination because you have no proof of the donation.

You cannot deduct the value of any goods or services you received in regard to your donation. As an example, you pay $200 a seat to attend a holiday fundraiser dinner sponsored by the local arts organization. In claiming the deduction on your tax return, you must be careful to subtract the fair market value of the dinner you received. Oftentimes the charitable organization will assign a value to the goods received, but if they do not you must still subtract the value.

Only your out-of-pocket expenses are deductible. Let’s say you agree to distribute holiday gift baskets assembled by your church to various needy families in the community by driving to the families’ homes and delivering the baskets. You may claim either the actual expenses of gasoline and oil, or the charitable mileage rate of 14¢ a mile. But you cannot claim the value of using your own car, or your time.

If you do want to give cash to a charitable organization, and you own long term (more than one year) appreciated stock or securities, you may want to consider donating the stock or securities. This gives you a double benefit: you get to deduct the fair market value of the stock, the organization receives the gift, and you do not have to pay capital gains on the appreciation.

If the value of your gift or gifts exceeds $250 to any one organization, you must generally obtain an acknowledgement letter from the organization that meets the requirements of the IRS. Most organizations will routinely issue such letters, but, if not, be sure you obtain such a letter.

If you are especially generous, and you want to donate an item worth more than $5,000, you will need to obtain an appraisal. The appraisal must be done by a qualified appraiser, and it must state that it was done for tax purposes.

Of course, most folks give out of a generous heart and in the spirit of giving. But at times, with just a little thought or planning, you can also enjoy the tax benefits that may result from your generosity.

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Chris Rubino, EA
Tax Content Developer

 

Chris’ current job title at TaxAudit is Tax Content Developer. He is an Enrolled Agent, and at present spends most of his time in the Education and Research Department, writing texts for the Education team and researching tax questions that arise during audits. During his time at TaxAudit he has been in a number of roles, including Return Reviewer and Audit Representative. He brought a varied financial background to TaxAudit, including income tax preparation and financial planning advisement. 


 

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This blog does not provide legal, financial, accounting, or tax advice. The content on this blog is “as is” and carries no warranties. TaxAudit does not warrant or guarantee the accuracy, reliability, and completeness of the content of this blog. Content may become out of date as tax laws change. TaxAudit may, but has no obligation to monitor or respond to comments.