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Which Charitable Contributions Are Tax-Deductible?

Money Girl explains when making a charitable donation can also be a money-saving tax break.

By
Laura Adams, MBA,
October 9, 2013
Episode #330

Page 2 of 2

Which Charitable Contributions Are Tax Deductible?

Now that you know that itemizing deductions is required for a charitable contribution to cut your tax bill, let’s discuss what types of charitable contributions are tax-deductible.

When you receive something in return for making a charitable donation, you can only deduct the amount that exceeds the fair market value of the benefit received.

Donating cash to a charity is a straightforward, allowable deduction. But where things get muddy is when you purchase something that benefits a charity, like a silent auction item or artwork—like Lori did.

When you receive something in return for making a charitable donation, you can only deduct the amount that exceeds the fair market value of the benefit received.

For example, let’s say your child’s school is raising money for a field trip. They’re selling tickets to a fundraising dinner, valued at $100, and you buy a ticket for $150. Since the amount you paid to the charity exceeds the value of the dinner, you can deduct the difference, or $50.

So, Lori must compare what she paid for the artwork against its estimated fair market value. But how do you do that?

How to Determine Fair Market Value

A qualified organization must give you a written statement if you make a payment of more than $75 that’s partly a contribution and partly for goods or services. It must give you a good faith valuation of what you bought and explain that you can only deduct the amount you paid that exceeds it.

If you donate personal belongings to a charity, like clothes or household goods, you also need to estimate their fair market value for tax purposes. They must be in good used condition or better to qualify as an allowable deduction.  

There’s no set formula to calculate fair market value for inexpensive items, but it’s usually far less than the retail price. Consider what an item would probably sell for on sites like eBay or Craigslist, or in a consignment or thrift shop in its current condition.

If the property you donate is valuable or unique in some way, refer to IRS Publication 561, Determining the Value of Donated Property for more information.

Records to Keep for Charitable Donations

No matter if your contribution is cash, check, or property, you must keep a record that includes the name of the organization, the date of the contribution, and the amount. For a contribution of $250 or more, you also need written acknowledgment from the organization that describes your donation, including a good faith estimate of its value.

For a contribution to be tax-deductible, it must be made payable to a qualified organization, never to an individual. Qualified charities include a wide variety of organizations, including schools, religious organizations, veterans’ groups, fraternal societies, and government branches.

To see a full list or check the status of a specific organization, use the Exempt Organizations Select Check tool at irs.gov. For more information about making large donations refer to IRS Publication 526, Charitable Contributions or speak to a qualified tax accountant.

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Woman Holding Donation Box image courtesy of Shutterstock

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