Cashing in on Uncommon Charitable Contributions
by John T. Wojcik, CPA, MST, CVA | Selden Fox
For taxpayers who itemize deductions, the Internal Revenue Code allows several ways to contribute to qualified organizations beyond writing a check or dropping off a box of clothing to your favorite charity. Let’s review the various ways to take advantage of charitable deductions.
Even though you’re not allowed a tax deduction for volunteering your services, time spent in your car while helping a charitable organization can give you a tax deduction. If you use your car to help a charitable organization — for example, delivering food to the needy — you will get a deduction of $0.14 per mile on your tax return. You can also keep track of the actual costs of your driving and deduct gasoline, parking, and tolls paid. Other unreimbursed costs that you incur for a charitable organization, such as office supplies or stamps, can be taken as a charitable contribution. In order to deduct the amounts paid in giving services to a qualified organization, the amounts must be unreimbursed, directly connected with the services, and not personal expenses. Lastly, if your volunteer work requires you to wear a uniform, the cost of that uniform can be taken as a deduction as well.
You can give appreciated stock to a qualified organization and receive a deduction for the fair market value of the stock. For example, if you bought 100 shares of XYZ stock at $10 per share ten years ago, and it is now selling for $25 per share, you can claim a deduction of $2,500 and avoid paying any capital gains tax. Instead of selling stock, paying tax on the gain, and then donating the proceeds to a charity, why not just donate the stock directly to the qualified organization and avoid paying any taxes? This benefit only applies to long-term holdings (held for more than one year); you can only deduct what you originally paid if you donate a stock held one year or less.
If a student (who is not your dependent or relative) lives with you, you can deduct up to $50 per month over the time the student lives with you. The student must be in the 12th grade or lower at a U.S. school, and live in your home under a formal agreement with a qualified organization to provide educational opportunities for the student.
Do you have an old, beat-up car you want to get rid of? Donate the car to a charity and take a deduction equal to the net proceeds the charity receives on the vehicle. You must attach to your tax return copy B of the Form 1098-C that you received from the organization. A boat or airplane can also be contributed to a qualified organization.
What Does the IRS Require for Proof of Deduction?
In order to deduct any monetary contribution, a bank record or written communication from the qualified organization must be maintained, containing the name of the organization, the date of the contribution, and the amount of the contribution. Bank records may include a cancelled check, a bank or credit union statement, or a credit card statement. For a contribution of $250 or more, you must obtain and keep in your records a written letter from the qualified organization, indicating the amount of the cash contribution or a description of any property donated.
For noncash contributions, you can deduct the fair market value of the property you donate to qualified organizations. If your noncash contribution is more than $500 and less than $5,000, you must file Form 8283, Section A. If your noncash contribution is greater than $5,000, you will need a qualified appraisal of the contribution, and you must file Form 8283, Section B.
What contributions can’t you deduct?
- Contributions made to an individual, regardless of the person’s neediness
- Political contributions
- The value of your time or services
- Personal expenses, such as the cost of meals while volunteering
- Contributions to homeowners’ associations, social or sport clubs, civic leagues, or chambers of commerce
In order to check and see if the organization you are contributing to is a qualified organization, ask the charitable organization if they meet IRS guidelines. If they do not know, you can check the IRS website for exempt organizations eligible to receive tax-deductible contributions.
John T. Wojcik, CPA, MST, CVA
John Wojcik is a Certified Valuation Analyst and a member of the National Association of Certified Valuators and Analysts (NACVA). John earned his bachelor’s degree in accounting and finance from Illinois State University and his MST in taxation from Northern Illinois University – College of Business.
