by Nicole Oeltjen
Tax Senior at Atchley & Associates, LLP
The holidays are approaching and with the spirit of giving all around you may be inspired to donate to a local charity. Charitable giving makes you feel good, and bonus-you can save on your tax liablity! There are several ways to donate to a charitable organization which can help those in need or to further a cause you are passionate about. You can donate good old fashion cash or non-cash items such as food, clothing, toys, as well as donations of stock and vehicles. When donating non-cash items, the deductible value is the fair market value of the item-generally the value at which the item would be exchanged between a willing buyer and a willing seller where both have reasonable knowledge of all the relevant facts. Best practice is to document the donation either with bank records, written acknowledgement from the organization, or a telephone bill if donating by text. If you donate similar non-cash items valued at more than $5,000, generally, you will need a qualified appraisal in order to claim a deduction. When donating a vehicle, the organization should issue you a Form 1098-C.
Although purchasing raffle tickets from an organization is helping the organization raise money, the cost of the raffle ticket is not considered a charitable contribution to the buyer, but rather a ticket purchase to gamble. You do not receive a deduction for buying charitable raffle tickets. However, donating items to an organization for a raffle or an auction is considered a non-cash donation to the extent of its fair market value. If you purchase an item from an auction that the organization is holding then the charitable contribution is the amount that is in excess of the fair market value of the item purchased. Generally, you will want to obtain a written acknowledgement letter from the organization stating the fair market value along with the amount paid for the item purchased at the auction.
In order to receive a tax benefit you must file Form 1040 and itemize using Schedule A instead of using the standard deduction. This means your personal expenses such as medical, real estate and sales tax, mortgage interest, charitable contributions, and other qualified personal deductible expenses are greater than the standard deduction.
Be sure that your charitable donation is to a qualified 501(c)(3) organization. If you do not know, usually the organization’s website or acknowledgement letter will inform you of the type of non-profit organization. You can also check the IRS website to confirm.