Tuesday, May 8, 2012
Are all charitable gifts deductible? Some are and some are NOT! Make sure you know the difference.
Posted by Armanino Nonprofit Team
Simply put – donate to a qualified charity or non-profit organization and get a tax deduction. It’s that simple. Or is it? In general, you can deduct any cash contributions you make, and you can deduct the fair-market-value of any donated property, such as clothing, household items, or vehicles.
As a non-profit organization, you need to make sure you know what types of contributions are deductible and which are not. This will help to ensure you are not misleading certain donors into taking federal tax deductions on their personal returns for donations that might not qualify for such tax deductibility. In order to deduct charitable contributions from your federal taxes you must itemize deductions. A donation must be made to a qualified organization in order to be considered a valid charitable deduction.
A deductible charitable contribution is a donation or gift made to a qualified organization. The donation must be made voluntarily and with no expectation of any substantial reward or benefit. It is also possible to make charitable contributions of stocks or IRA funds.
Donors may deduct the fair market value of food, clothing, or household items such as furniture, fixtures, and even electronics that might be donated to your organization.
Donors may also donate cars, trucks, boats or even planes. The value of their donation will be determined by how your charitable organization uses the vehicle. Your organization should provide the donor with paperwork describing how the vehicle was used and, if it was auctioned, what the selling price was.
A non-profit organization will generally either auction a vehicle, refurbish it and donate it (or sell it to a needy buyer at a vastly reduced price), or make use of it themselves. If a donated vehicle is sold at auction for over $500, the donor can deduct the full selling price of the vehicle on their tax return. If the donated vehicle is auctioned for $500 or less, the donor can deduct the greater of the selling price or the fair market value.
If a donated vehicle is refurbished and/or repaired, and then given away or sold to a needy buyer, the donor can generally deduct the fair market value of the vehicle. If the vehicle is used by the organization for other purposes, the donor may also generally deduct its fair market value. With all of these “deductible” charitable contributions, it probably seems like just about anything donated to a qualified charitable organization should be deductible but there is one particular gift often made to charitable organizations all around the world that is NOT deductible – “Donated Professional Services.”
Donated professional services are NOT deductible.
As a charitable organization that receives (or may receive) donated professional services, you should be aware of the fact that such services are NOT deductible and therefore, should be extremely careful when providing acknowledgments of such “In-kind” gifts from donors. A sample recommended acknowledgment has been included for your reference (see below):
Sample Acknowledgment for an In-Kind Gift
“Thank you for your generous gift of ________(Full Description)________ which we received on ____(Date)____. Your generous contribution will help to further the important work of our organization.
(Note: The benefit to the organization of the In-Kind contribution may be expressed in exact terms of its direct application to the organization’s operation, or it may be more appropriate that an indirect reference be made when the In-Kind gift’s application is not as sharply defined.)
While, according to IRS regulations, you will not be allowed to declare the value of your donation from our acknowledgment, we can say that, but for your generosity, we likely would have had to expend approximately $________ for what you gave as an In-Kind contribution. These are dollars saved which we are able to apply directly to support the programs and services we provide for the well-being of those whom we serve in our community.”
Nonprofit organizations have specialized audit, tax and operational needs that require specialized service. Armanino has been committed to the nonprofit sector since 1953, and we now work with more than 500 nonprofit clients. This hands-on experience gives our staff of CPAs and former CFOs a deeper understanding of the issues nonprofits face, so we’re able to meet their needs and help them fulfill their missions in the most efficient, cost-effective way possible.