TIPS FOR

TAX DEDUCTIBLE

CHARITABLE

DONATIONS

By Donovan Thiessen, CPA

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Thanksgiving has passed and the holiday season is in full swing. With the end of the year fast approaching, it is an ideal time to review tax planning opportunities. Charitable contributions are a popular choice; it is a critical fundraising time for charities and a time for generous taxpayers to leverage tax benefits. This article reviews common rules and tips as you report itemized taxable deductions on Schedule A of your income tax return. (Note: it is assumed that you are making personal donations rather than donations from a business.)

Charitable deductions must be made to qualified organizations. Charities usually post their IRS determination letter as well as copies of their Form 990 income tax return on its website. If this information isn’t available on the charity’s website, check www.charitynavigator.org. Be wary of donating to an entity whose charitable status can not be verified.

To substantiate cash and non cash gifts over $250, you must receive a letter from the organization. It should include your name, the amount donated and the date of the donation. The letter may include an adjustment for any value of goods or services that you received. That adjustment typically serves to reduce the amount of your deduction because you received something for your donation (perhaps a meal or a raffle item). Substantiation can also be achieved with a cancelled check or detailed credit card activity for amounts under $250. You should keep your documentation with the rest of your tax work papers for the year; it is not required to be attached or filed with your tax return.

Non cash items such as coins, stamp collections, artwork and common household items and clothing are typically deducted at its fair market value. A document with detailed descriptions of each item should be prepared and matched with a letter or receipt from the receiving charity. For amounts in excess of $500 you will need to prepare IRS Form 8283. If you are claiming a non cash donation in excess of $5,000 you will need to have an appraisal completed by a qualified appraiser. This appraisal does not need to be attached to the tax return but you’ll need to provide a copy to the IRS should the deduction be questioned during an audit.

Appreciated stock owned for at least one year can be donated to a charity and deducted at its fair market value. This is a fantastic option since capital gains tax can also be avoided by donating the stock instead of selling it.

Tax benefits are great incentives to donate. Many charities operate on minimal budgets and need your generosity to continue providing critical services to our community. If you work with a CPA and your donations are higher than what you usually give, contact him or her to discuss a tax projection. Depending on other tax attributes for the year, it may be more beneficial to wait until next year to make the donation. Additional information on charitable contributions can be found in IRS Publication 526.


Donovan Thiessen, CPA has worked with Gerety & Associates in Las Vegas, Nev., for 9 years, focusing on business, trust and individual taxation for small business owners. He received his B.A. in economics from the University of Iowa and is an active supporter of several local charities. You may reach Thiessen at dthiessen@geretycpa.com, and 702-933-2213.