Many nonprofit organizations across the country rely on donations to support their operations. These funds not only support worthy causes in our community but may provide a tax benefit to you as the donor. Below are a few common instances of what is and isn’t a charitable contribution and how to document and properly support a charitable contribution claimed on your individual tax return

Charitable vs. Noncharitable Organizations

To receive an individual tax benefit for a contribution, the donation must be given to an organization recognized by the IRS as a Qualified Organization. Examples of qualified organizations are:

• Churches and other religious institutions;
• Federal, state and local governments, if the gift is solely for public purposes;
• Other 501(c)(3) organizations (e.g. Salvation Army, Goodwill, United Way, etc.)

Organizations NOT qualified for deductible contributions include:

• Civic leagues, social and sports clubs, labor unions and chambers of commerce
• Groups run for personal profit
• Lobbying organizations.

Cash Donations

When an individual taxpayer makes a cash donation to a qualified organization and receives nothing in return, he or she is generally eligible to claim a tax deduction for the dollar amount given. To substantiate such a deduction, the following items must be kept on record:

• A cancelled check, credit card statement or other bank record showing the name of the qualified organization, the date of the contribution and the amount of the contribution
• A written acknowledgement from the recipient organization that shows the name of the qualified organization, the date of the contribution, the amount of the contribution.

For donations of $250 or more, the written acknowledgement should include a statement specifying that no goods or services were provided in exchange for the donation.

The IRS has become particularly assertive in auditing cash donation deductions for amounts of $250 or more that aren’t substantiated by acknowledgements that include the statement that no goods or services were received. You also must ensure that your acknowledgement was created by either the date you file your return or the due date, including extensions, for filing the original return.

Donations When Donor Receives Value in Return

When an individual taxpayer receives value in return for a donation, only the amount contributed in excess of the fair market value of an item received is a deductible contribution. The acknowledgement from the recipient organization should show the amount contributed and a good faith estimate of the value received by the donor.

For example, we frequently receive questions regarding the ability to deduct purchases made at charity auctions. A common perception is that the amount paid qualifies in full as a donation. However, because you receive something of value in return, namely the item you’ve purchased,
you may claim the purchase as a deduction only if you paid more than the stated fair market value.

The same is true of ticket purchases to attend events at qualified organizations. Only the amount in excess of the value of entry, typically a meal, is deductible.

Most qualified charities provide proper documentation spelling out the fair market value and excess; however, it is ultimately your responsibility as the taxpayer to ensure correct reporting. If you don’t receive a proper receipt from the charity, be sure to request one prior to your tax deadline.