Can I deduct my charitable contributions? course - video transcript

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Page 1 – Can I Deduct My Charitable Contributions

M: Welcome to Can I Deduct my Charitable Contributions. This program is brought to you by the IRS Exempt Organizations.

Page 2 – Meet Coach

M: Today, Coach, the knowledgeable, straight-talking IRS Revenue Agent from the StayExempt website will answer some basic questions about:

Page 3 – Objectives

• What types of contributions you can deduct,
• How much you can deduct,
• What records to keep,
• and how to report your charitable contributions.

Page 4 – Meet Vernon and Emma

M: Also here to ask questions are Vernon, a retired volunteer, and Emma who handles fundraising and responds to public inquiries for a charitable organization.

Page 5 – What is a charitable contribution?

M: OK Coach, why don’t you start us off with a basic definition of a charitable contribution?

Coach: Hi everyone, it’s a pleasure to be with you today. I hope our session will answer questions you may have about the donations you make to charitable organizations. So, what is a charitable contribution? A charitable contribution is a donation or gift to or for the use of a qualified organization. It is voluntary and it is made without getting or expecting to get substantial benefits in return.

Page 6 – What do you mean by qualified?

Vernon: Well, I guess now is as good a time as any to start the questions. What do you mean by qualified?

Page 7 – What do you mean by qualified?

Coach: That’s a good question. Not every nonprofit tax-exempt organization is qualified to receive tax-deductible contributions. Qualified organizations include nonprofit groups whose purpose is:

• Religious,
• Charitable,
• Educational,
• Scientific,
• Literary, or
• Preventing cruelty to children or animals.

Page 8 – How can find out if they are qualified

Vernon: Coach, I make donations to my local food bank, but I don’t know if it is a “qualified” organization. I think it’s nonprofit and it seems like the work it does is charitable. How can I find out if it is qualified?

Page 9 – How do I determine whether an organization is qualified

Coach: Excellent question Vernon. You can ask the organization whether it is a qualified organization and it should be able to tell you. Or you can check IRS Publication 78; it lists most qualified organizations. An organization is listed in Publication 78 because it applied for and was granted Federal tax exemption. But keep in mind, churches, religious organizations, and governments do not have to apply for tax exemption so you might not find them in Publication 78. Even so, contributions to them would be deductible.

Page 10 – Where can I find Publication 78?

Vernon: Where can I find this Publication 78?

Page 11 – Publication 78

Coach: The easiest way is to go to the Charities and Non-Profits page on the IRS website and click on Search for Charities. Or you can check your local library’s reference section. You can also call IRS Customer Account Services at 877-829-5500 (or 800-829-4059 for TTY/TDD help) to find out if an organization is qualified.

Page 12 – Deductible contributions

M: Coach, let’s talk about what types of contributions are deductible.

Coach: Generally, you can deduct contributions of money or property that you donate to a qualified organization. You can also deduct certain out-of-pocket expenses you incur when you provide services to a qualified organization. The expenses must:

• Result from services you provided,
• Be directly connected with the services,
• Not be personal, living, or family expenses, and
• Be unreimbursed.

Page 13 – Deductible Contributions

Vernon: I volunteer 10 to 15 hours a week at a qualified charitable organization. Can I deduct the cost of my time?

Page 14 – Deductible Contributions

Coach: No Vernon, you cannot deduct the value of your time or services. However, as I mentioned earlier, you can deduct your out-of-pocket expenses such as the cost of gas directly related to getting to and from the place where you volunteer. If you don’t want to figure your actual costs, you can use the standard mileage rate for charitable contributions.

Page 15 – Nondeductible Contributions

M: Coach, why don’t you talk a little bit about the types of contributions that are not deductible.

Coach: Well, you can’t deduct money or property you give to an organization that is not qualified to receive tax-deductible contributions such as a civic league, social or sports club, labor union, chamber of commerce, political group or candidate for public office.

You also can’t deduct the cost of raffle, bingo, or lottery tickets, even if you don’t win. And, as I just explained to Vernon, you can’t deduct the value of your time or services.

Page 16 – Nondeductible contributions

Emma: Coach, my daughter attends a parochial school and a friend told me that I can deduct the tuition I pay. Is that right?

Page 17 – Nondeductible contributions

Coach: No, you cannot deduct the cost of your daughter’s tuition. Remember the definition of a charitable contribution—tuition does not meet that definition. It’s not voluntary and you are getting something in return that is of equal value to the money you gave up.

Page 18 – Nondeductible contributions

Emma: Thanks Coach—that would have been a big mistake. I won’t be taking my friend’s tax advice anymore.

Page 19 – How much can you deduct?

M: We’ve talked about the types of charitable contributions you can deduct, but can you always deduct the full amount?

Coach: Generally, you can deduct the full amount of any money you contribute to a qualified organization unless you receive a benefit as a result of making a contribution. In that case, you can only deduct the amount of your contribution that is more than the value of the benefit you receive, provided that you intended to make a charitable contribution of the excess.

For example, if you pay $65 for a ticket to a dinner dance at a church and the event has a fair market value of $25, the amount you can deduct as a charitable contribution is $40, the cost of the ticket ($65) less the value of the dinner dance ($25).

Page 20 – How much can you deduct?

Emma: Coach, the charity I work for has a fund-raising auction every year. Last year I had the winning bid of $600 for a week’s stay at a beach house. Can I deduct the full amount?

Page 21 – How much can you deduct?

Coach: No, the amount you can deduct will depend on the fair rental value of the beach house. If it would cost $1,000 to rent the house for that week, you would not have a deductible charitable contribution because the amount you paid was less than the fair rental value. If the fair rental value is $500, you would have a deductible charitable contribution of $100, provided you intended to make a charitable contribution of the excess.

Page 22 – How much can you deduct?

Vernon: How would I know the fair market value of any goods or services I receive in return for my contribution?

Page 23 – How do I know the value of any goods or services provided?

Coach: The organization has an obligation to tell you. If you make a payment of $75 or more that is partly a contribution and partly for goods and services, most organizations must provide you with a written disclosure statement. The statement must state that your deductible contribution is limited to the excess money (or the fair market value of property) you contributed over the value of the goods or services provided by the organization. It must also provide a good-faith estimate of the fair market value of the goods or services. An organization must furnish the disclosure statement either when it solicits the contribution or when it receives the contribution.

Page 24 – How much can you deduct?

M: Thanks Coach. What about property you donate, like used clothing or household goods? Can you deduct the amount you paid for it?

Coach: The general rule is you can deduct the fair market value of the property at the time of the contribution. However, there are special rules for different types of donated property. Because our time is limited, I’ll just touch on the rules for the two most common types of property donations--clothing or household items and vehicles.

Page 25 – Clothing and household items

Coach: If you contribute clothing or household items to a qualified organization, the amount you can deduct is generally the fair market value of the property at the time of the contribution. In addition, you cannot take a deduction for clothing or household items you donate unless the items are in good used condition or better.

Page 26 – Clothing and household items

Coach: Household items include furniture, furnishings, electronics, appliances, linens and other similar items.

Household items do not include food, paintings, antiques and other art objects, jewelry and gems and collections.

Special rules apply to these items, and we don’t have time to cover all of them today. For information on determining the value of items such as antiques or jewelry, see Publication 561, Determining the Value of Donated Property.

Page 27 – Clothing and household items

Emma: Coach, earlier this year I cleaned out my closet and donated a lot of clothing. I also bought new living room furniture and donated my old furniture to a qualified charitable organization. How do I determine the fair market value of my used clothing and old furniture?

Page 28 – Clothing and household items

Coach: The fair market value of used clothing and household items, such as furniture, is usually much lower than what you paid for the item. There are no fixed formulas or methods for finding the value of clothing items. A good method for determining the value of used clothing is to see what buyers actually pay in used clothing stores, such as consignment or thrift shops.

Furniture value is also difficult to determine. An item may have little or no market value because it is in a worn condition, out of style, or no longer useful. Therefore, formulas (such as using a percentage of the cost to buy a new replacement item) are not acceptable in determining value. You should have support for your valuation, such as photographs, canceled checks, receipts from your purchases of the items, or other evidence.

For more details on how to determine fair market value, check out Publication 561.

Page 29 – Publication 561

M: Ok Coach, let’s move on to vehicle donations. How are they different from other property donations? Can’t I just claim the fair market value of my car?

Page 30 – Vehicle Donations

Coach: Not always. The rules for vehicle donations--which include cars, boats and airplanes-- are different. In order to calculate the amount you can deduct when you donate a vehicle, you’ll need to know what the organization intends to do with the vehicle. How much you can deduct will depend on whether the organization intends to sell the vehicle, use the vehicle in its charitable work, make a major improvement to the vehicle, or give the vehicle away or sell it for well below the fair market value to a needy individual.

Page 31 – Vehicle donations

Coach: Charitable organizations typically sell the vehicles that are donated to them. If your contribution is worth more than $500 and the organization sells the vehicle, generally your deduction is limited to the smaller of the gross proceeds from the sale of the vehicle, or the vehicle’s fair market value on the date of the contribution. You should consult Publications 561 and 4303 for more information on determining the fair market value.

Page 32 – Vehicle donations

Coach: Generally, you can deduct the vehicle’s fair market value if the organization intends to make a significant intervening use of or material improvement to the vehicle before transferring it. You can also deduct the fair market value if the organization gives the vehicle to or sells it for a price well below fair market value to a needy individual to further the organization’s charitable purpose.

Page 33 – Vehicle donations

Vernon: Wow Coach, that sounds confusing. I’ve been thinking of donating my wife’s old car. Now that I’m retired, we don’t need two cars. How in the world will I know what the organization ends up doing with her car?

Page 34 – Vehicle donations

Coach: Lucky for you Vernon, the IRS requires that the organization provide you with a written acknowledgment for a vehicle contribution deduction of more than $500. What that acknowledgment must contain will depend on what the organization did with the vehicle.

Page 35 – Vehicle donations

Coach: For example, if the organization sold the vehicle, the statement must certify that it was sold in an arm’s length transaction between unrelated parties. It must also include the date the vehicle was sold, the gross proceeds received from the sale, and a statement that your deduction may not exceed the gross proceeds from the sale.

Page 36 – Vehicle donations

Coach: If the organization intends to use or materially improve the vehicle, the acknowledgement must certify that it intends to make a significant intervening use of the vehicle or a material improvement to the vehicle, include a detailed description of the intended use or material improvement, the duration of that use, and a certification that the vehicle will not be sold before completion of the use or improvement.

Page 37 – Vehicle donations

Coach: If the organization intends to give or sell the vehicle to a needy individual at a price significantly below fair market value and the gift or sale directly furthers the organization’s charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation, then the acknowledgment must certify these facts.

Page 38 – Vehicle donations

Coach: The organization must provide you with Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C). You must attach a copy of Form 1098-C (or other statement) to your tax return.

Page 39 – A donor’s guide to vehicle donations

Coach: If you’re contemplating donating a vehicle to a charitable organization, I highly recommend that you first review Publication 4303, A Donor’s Guide to Vehicle Donations.

Page 40 – Recordkeeping

M: Coach, can you give us a brief description of what types of records a donor should keep to verify charitable contributions?

Coach: The kinds of records a donor must keep will depend on the amount of the contribution and whether it’s a cash contribution, noncash contribution, or out-of-pocket expense for donated services.

Page 41 – Recordkeeping

Coach: To deduct a cash contribution, regardless of the amount, you must have a bank record (such as a canceled check) or a written communication from the organization (such as a receipt or letter) showing the name of the organization, the date of the contribution, and the amount of the contribution. Cash contributions include those paid by cash, check, electronic funds transfer, credit card, or payroll deduction.

Page 42 – Recordkeeping

Emma: Coach, I make contributions by payroll deduction. What type of records do I need to

Page 43 – Recordkeeping

Coach: For payroll deductions you’ll need a pay stub, Form W-2, or other employer-furnished document that shows the amount withheld and paid to the charitable organization, along with a pledge card prepared by or at the direction of the charitable organization.

Page 44 – Recordkeeping

Emma: Coach, the organization I work for gives donors a written acknowledgment if they make a large contribution even when they pay with a check or credit card. Isn’t that unnecessary paperwork?

Page 45 – Recordkeeping

Coach: If you make a contribution of $250 or more to an organization, you can only claim a deduction if you have a written acknowledgment from the organization. This acknowledgement must include the amount of cash you contributed, whether you received any goods or services in return for your contribution, along with a description and good faith estimate of the value of the goods or services provided, or if applicable, a statement that the only benefit you received was an intangible religious benefit.

Page 46 – Recordkeeping

Vernon: I write a $25 check to my church every Sunday. Do I have to get a written acknowledgment from them as well?

Page 47 – Recordkeeping

Coach: No. The written acknowledgment is only required for single contributions of $250 or more. You do not combine separate contributions. Similarly, if contributions are made by payroll deduction, the deduction from each paycheck is treated as a separate contribution. Don’t forget, as I previously stated you cannot deduct a cash contribution of any amount unless you keep a bank record or have a written statement from the organization.

Page 48 – Recordkeeping

Emma: What about noncash contributions? What type of records do I need to keep?

Page 49 – Recordkeeping

Coach: The records you’ll need to keep for noncash contributions are more involved and depend on the amount of your deduction. There are different rules if your deduction is:

• Less than $250,
• At least $250 but not more than $500,
• Over $500 but not more than $5,000, or
• Over $5000.

Page 50 – Publication 526

Coach: Because we don’t have time to go into all of these situations, I suggest that you review Publication 526, Charitable Contributions, which has an in-depth discussion of records to keep for noncash contributions.

Page 51 – Where to deduct

Vernon: Coach, I’m pretty clear on what I can deduct, how much I can deduct, and what records I need to keep. But what form do I use to claim my deduction? Now that I’m retired and my house is paid for I’ll be filing the short form (Form 1040A). Is there a line on that form for contributions or do I attach a separate schedule?

Page 52 – Where to deduct

Coach: Unfortunately, to deduct a charitable contribution, you must file Form 1040 and itemize your deductions on Schedule A.

Both cash and noncash contributions are entered on Schedule A.

If your total deduction for all noncash contributions for the year is over $500, you also must complete Form 8283, Noncash Charitable Contributions, and attach it to your Form 1040.

Page 53 – Deduction limits

M: Coach, we are almost out of time but could you tell us if there are any limits on the amount of your charitable contribution deduction?

Coach: There can be limits on the amount of your charitable contribution deduction, but only if your total contributions for the year are more than 20% of your adjusted gross income. For most of us these limits will never apply. For example, if your adjusted gross income is $100,000, your contribution deduction would have to be over $20,000 before the limits might apply.

Page 54 – Deduction limits

Coach: The limit on your deduction (50%, 30%, or 20%) will depend on the type of property you give, and the type of organization you give it to. A different limit applies to certain qualified conservation contributions.

Page 55 – Deduction limits

Coach: We do not have time to go into the computation of these limits. If your contribution deduction is more than 20% of your adjusted gross income, Publication 526, Charitable Contributions, has a good explanation of the limits and a worksheet you can use to figure the deduction limits.

Page 56 – More information

Coach: Before we end this program, I’d like to remind everyone about the various publications the IRS has that cover charitable contributions.

• Publication 526, Charitable Contributions, discusses everything we’ve talked about today and much more
• Publication 561, Determining the Value of Donated Property, provides information on how to determine the value of donated property and discusses when you need an appraisal
• Publication 1771, Charitable Contribution Substantiation and Disclosure Requirements, covers substantiation and disclosure rules
• Publication 4303, A Donor’s Guide to Vehicle Donations, discusses the rules for donated vehicles

You can download these publications from IRS.gov or you can order them by calling 800-829-3676 — or 800-829-4059 for TTY/TDD help.

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