Tis the Season to Give and Receive: Charitable Donations Reap Tax Time Rewards

Dec 03, 2010, 11:38 ET from Illinois CPA Society

CHICAGO, Dec. 3, 2010 /PRNewswire-USNewswire/ -- According to a recent study by the Nonprofit Research Collaborative, about half of American charities reported a decrease in donations in 2009 and they don't have high hopes for the holiday season. If you think you can help, remember that giving gets you in the holiday spirit and your generosity is rewarded when you get the benefit of your contribution as a deduction on your tax return.

According to the Illinois CPA Society, items you can deduct include:

  • Monetary gifts
  • The value of materials or food donations
  • Out of pocket expenses you incur while giving of your time and services, such as gas and travel costs.

However, you can't deduct the following:

  • The value of your time or services
  • The cost of raffle tickets, bingo or other games of chance
  • Contributions to political candidates or organizations.

The Society recommends following these steps to be sure you meet IRS requirements:

  1. Keep good records. All monetary contributions, regardless of the amount, must be documented with a receipt and a bank record such as a cancelled check. Written acknowledgement is needed if the donation is over $250. You'll also need receipts for donated gifts, such as clothing or appliances, and for any expenses.
  2. Consider using a credit card so you'll always have an automatic receipt. Checks are also better than cash since they provide accepted proof of a donation.  
  3. Check if the charity is qualified by the IRS. Contributions of any kind are not deductible unless the donation is made to a qualified charity. Find out if the charity is qualified on the  IRS site - http://www.irs.gov/charities/article/0,,id=96136,00.html.
  4. Make sure you're giving to a legitimate charity. Use sites such as the American Institute of Philanthropy's www.charitywatch.org , www.charitynavigator.org or www.guidestar.org to be sure the charity is a legitimate organization that uses its money wisely.
  5. Don't assume all donated goods qualify for a deduction. Items you donate must be in "good used condition or better." While not well clarified by the IRS, it basically means no damaged or well used clothing or broken down appliances.
  6. Be honest on the value of items. You may deduct only the fair market value of donated goods like old clothing; market value is the amount a willing buyer will pay a willing seller. Market value is not the purchase price, but more like the amount someone would pay at a thrift store.  
  7. Watch your timing. Donations must be made before the end of the year in order to get a 2010 tax deduction. Contributions by check are considered by the date they are mailed, not the date they are written or when the check clears.

Keep in mind donations must also be of "meaningful use" to a charity. These rules generally apply to household items such as furniture, appliances and electronics, but not to art, gems or antiques. Vehicles have their own set of rules which can also be found on the IRS site.

When in doubt, consult with a CPA; if you need a CPA use the Find a CPA Directory on the Illinois CPA Society website, www.icpas.org where more information is also available.

About the Illinois CPA Society

The Illinois CPA Society, founded in 1903, is the fifth largest state CPA Society in the nation, with more than 24,000 members. It is the premier professional organization that represents CPAs in Illinois. During its over 100 years of existence, the Society has advanced the highest ethical and financial standards of the profession, and has been a leader in educating the public on financial issues.

SOURCE Illinois CPA Society