Were you aware that not all contributions are “tax deductible”? Just so that you don’t get an unpleasant surprise after you donate larger sums of money, it pays to understand the mechanics of this.
For starters, know the difference between “Tax Exempt” and “Tax Deductable”
“Tax exempt” does not necessarily mean “tax deductible.” A tax exempt organization is one that does not have to pay income taxes. Contributions made to certain tax exempt organizations may be deductible on the donor’s federal income tax return. While the Internal Revenue Service (IRS) defines more than twenty different categories of tax exempt organizations, contributions to groups in only a few of these categories are tax deductible.”
According to the Better Business Bureau, there are more tips to keep in mind when you contribute to a worthy cause. Here are some of them:
1. Contributions are deductible for the year in which they are actually paid or delivered. Pledges are not deductible until the year in which they are paid.
2. The value of volunteer time or services to a charitable organization is not deductible. However, out-of-pocket expenses directly related to voluntary service are usually deductible.
3. Contributions for which the donor receives a gift or other kinds of benefits are deductible only to the extent that the donation exceeds the value of any benefit received by the donor.
4. Direct contributions to needy individuals are not deductible. Contributions must be made to qualified organizations in order to be tax deductible.
5. Contributions made directly to foreign organizations are not deductible, except in the case of some Canadian organizations as specified in an agreement with that country. Also, donations to charities located in Puerto Rico, the Virgin Islands, and other U.S. possessions are deductible. Such organizations must meet the requirements for exemption under the income tax laws of the United States.
6. The “fair market value” of goods donated to a thrift store is deductible as long as the store is operated by a charity. To determine fair market value, visit a thrift store and check the “going rate” for comparable items. One cannot take a deduction if the goods are sold on a consignment basis whereby the original owner gets a percentage of the final sales price.
7. Donated property may generally be deducted at the fair market value of the property at the time of the contribution. However, there are special rules for the donation of cars and other vehicles. Also, in certain situations, additional details concerning the property’s worth may need to be filed with the IRS in order to make a deduction on your federal income tax forms. Also, gifts of appreciated property are subject to special rules. See a financial advisor for additional details.
Categories: Charities, Organizations, Tips | Tags: better-business-bureau, charity, contributions, donations, tax-deductable-donations
