With the wildfires still raging in Northern California, and numerous states and territories still devastated by multiple hurricanes, many of my family, friends, and clients are talking of donating to help those affected. Some even mention a tax deduction as a benefit of donating. While this can be true in some situations, if the deductibility is among the reasons you are donating money or goods, you need to understand certain details.
First, the IRS allows taxpayers to deduct the value of goods and cash donated to qualified organizations. Qualified organizations have registered with the IRS as a charitable entity. They may include churches, 501c(3) organizations, war veteran’s organizations, etc. However, contributions that are to be used for a specific person are not deductible. Therefore, giving to the American Red Cross or your local church may be deductible, but donating to the GoFundMe account for your sister’s next door neighbor’s heart transplant is not. That may seem overly specific, but you’d be surprised what people are GoFunding these days.
Secondly, the charitable contributions deduction can only be taken by those taxpayers who itemize their deductions. If you have enough other deductions (mortgage, property tax, medical and job expenses, etc.) to itemize instead of taking the standard deduction, you will be able to enter your charitable contributions on Schedule A.
Third, you need to be able to prove it. With donations of any amount of cash, you should have a written document. This can be in the form of your bank record or a receipt from the organization. If it’s over $250 you need both. Any donation of goods should also have a receipt from the organization listing date and what was donated. The amount of the deduction should be based on fair market value of the items, not what you originally paid for it.
Pulling together in a crisis and helping our neighbors is a very American thing to do. I encourage all people to help wherever and however they can. The decision of how much to donate and to whom is a personal thing. Worthy causes are not always deductible, but that may not matter to you. Just keep in mind what you’ll need come tax time.
If you have any questions, please contact me. You can find the dry version of all this information here.