Charitable Deduction Guidelines

If you make a charitable donation, you might be able to deduct the amount of your donation from your taxable income. Nevertheless, you need to understand the IRS rules regarding this deduction. If you overestimate the amount of the deduction for which you qualify, you could be liable for late payment of taxes for any amount you improperly deducted.

Eligible Charities

• Donations to an organization are tax-deductible if it has charitable status under Section 501(c) of the Internal Revenue Code. The IRS usually grants 501(c) status to organizations established for religious, charitable, educational, literary or scientific purposes. Certain other groups, such as veteran organizations and causes devoted to the prevention of cruelty to animals, can also gain 501 (c) status.

Donation of Goods

• The valuation of cash donations is straightforward. If you donate goods, however, you must determine their value, and the IRS may disagree with your valuation of the items. In most cases, the IRS applies a fair market value standard for assigning value to donated goods. Special valuation rules apply to particular classes of articles such as home appliances. For this reason, it is best to err on the side of caution when valuing donated goods.

Non-Deductible Donations

• If you receive any benefit from making a charitable contribution, the IRS will not consider it a true donation, and will not allow you to deduct any of its value. You also cannot deduct the value of time or services provided to a charitable enterprise. For example, you cannot deduct the value of dental services performed for indigent people, although you can deduct the value of any dental equipment that you donate.

Deduction Limits

• The IRS does not treat all 501(c) organizations equally. Donors to hospitals, churches and colleges can deduct up to 50 percent of their adjusted gross income from their taxable income. The deduction limits for other types of 501(c) organizations vary, and in some cases are as low as 20 percent of the donor's adjusted gross income.

Record-keeping

• Since it's possible to abuse the IRS deduction for charitable donations, the IRS might audit you. For this reason, keep careful records of any donations you plan to write off. If you make a cash donation, obtain a written receipt, record of a payroll deduction, or a bank record such as a canceled check. If your donation is worth more than $250, the IRS requires a written acknowledgement from the recipient before you can deduct the amount from your taxable income.