Donations and Taxes

by | Nov 1, 2018 | Toby Talks Tax | 0 comments

Lately I’ve been panting over charitable donations.  They’re for good causes, and they earn you little rewards as well, in the form of tax deductions.

Uncle Sam gives the paw to several different kinds of nonprofits  – educational, religious, charitable, social welfare, agriculture, fraternal, and so on. To qualify, the organization must beg Uncle Sam for nonprofit status, and the trick is to prove that the organization is structured for the benefit of society.  In many cases, donations made to qualifying organizations are tax-deductible, so you get the fuzzy warm feeling of scratching somebody’s back while basking in a return scratch yourself.

But before you donate, have a bit of training.  As a charitable giver, you’re responsible for correctly growling about your donations on your Form 1040. Uncle Sam’s tax laws are complicated, and you don’t want to get bitten when you file. To ensure that your donations are legitimate, sniff around these danger zones:

  • If you give to the wrong charity or nonprofit, you can’t enjoy the benefit of the tax deduction.  That means you need to vet the charity.  Ask for its tax ID number and proof of its nonprofit status.
  • Sometimes you might be tempted to donate funds to what seems a worthy cause, but that really isn’t qualified – such as a neighbor who just got kicked to the doghouse. Remember:  if the cause doesn’t hold a tax-exempt status, you can’t claim the deduction.
  • Don’t take deductions for pledges to charities until you make the payments.  In other words, you don’t get puppy cuddles for treats until you give the treat.
  • If you “donate” funds to a cause and receive a “gift” in exchange, you’re allowed to declare only the difference between what you paid out and the fair market value of the item received.  In some cases, you may not be able to take the deduction at all.  For instance, if you give me a 10-cent doggy treat, but I respond with a puppy kiss worth $5,000, you don’t get the 10-cent write-off.  If you want to know how to valuate your donation and the gift, consult with a tax professional.
  • Social events to raise money for political purposes are always suspect, and the “contribution” is generally disallowed.  Follow the scent of the money.  If it leads to dinner with a governor campaigning for his next term, the deduction may not be allowable.
  • Leave a trail of your donations.  Document.  Document.  Document.
  • And last, nonprofits designed for the protection and training of animals happen to be my favorite. They get 500 bones from me every year. I’m currently petitioning Uncle Sam to include “bones” on its own line on Form 1040 Schedule A.

If you want to join me in this fight, call Law Offices of Christy Lee, P.C., and growl loudly.  I’m keeping count.