Holiday Tax Tips – Understand What You Can & Can’t Deduct!

9982890_sGiving to worthy charities during the holiday season is a “win-win” proposition; you are giving for a worthy cause, and doing yourself a favor next year at tax time. However, not all nonprofit organizations qualify as charities, and not all gifts are considered charitable donations. Knowing what you can and cannot claim as a charitable donation on your taxes is important in order to avoid disappointing surprises in the spring. Here are some pointers:

  • People don’t realize that a nonprofit organization is not always considered as a charitable organization that can receive tax-deductible donations. If you are giving a donation to a non-profit, be sure and ask what the organization’s tax-exempt status is.
  • When you “promise to pay” during a pledge drive, it doesn’t become a deductible charitable donation until you actually give the organization the money.
  • There are a number of gifts that aren’t considered deductible by the IRS, such as purchasing a raffle ticket from a charitable organization to raise money.
  • Timing is important; anything you claim on your taxes as a charitable donation for a tax year must actually be given during that year.
  • If you receive some kind of value in return for your donation, such as something you bought at a fundraiser for a charity, it does not count as a charitable donation.
  • If you receive some kind of value for your donation, but the fair market value of the price is less than what you paid, you can deduct the difference. An example: if you purchase a $50 ticket to a charitable event that includes a meal, and you could buy the same meal at a restaurant for $30, the additional $20 you paid would be deductible, but not the entire $50.
  • Any kind of money given to any kind of political cause is never considered a charitable contribution, no matter what it is.
  • The IRS wants proof of all cash donations, big or small; you must keep careful records in the form of canceled checks, statements, and/or receipts. If you make a cash donation of more than $250, you will also need an acknowledgment letter from the organization, dated before you file your tax return.
  • The IRS also wants proof of all non-cash donations. For non-cash gifts of $250 to $500, the proof must include written confirmation. For a cash gift of $500 to $5,000, you need both the confirmation, and proof of ownership of what you gave, and you will need to file a Form 8283. If you give a gift of noncash property valued at more than $5,000, you will need additional substantiation.

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