Did your client give a gift or make a contribution in 2017 to a qualified charitable organization?
If they did, they may qualify for an income tax deduction.
Charitable contributions are deductible only if your client itemizes deductions on their federal Schedule A (Form 1040), Itemized Deductions, and has the proper documentation to support the deduction. Deductions for most charitable contributions are generally limited to 50 percent of your client’s federal adjusted gross income (AGI), but in some cases limitations of 30 percent and 20 percent of federal AGI may apply. Also, the general rule is that payments to individuals are not deductible
A couple items to keep in mind:
Deduction limitation
If your client received a benefit as a result of making a contribution to a qualified organization, the deduction is limited to the amount of the contribution exceeding the value of the benefit received. This frequently arises when a contribution entitles the donor to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event.
Example: If your client buys a ticket to a charity dinner for $100, and the dinner itself is valued at $35, the donation will be limited $65 – the amount that exceeds the fair market value of the benefit received.
Remember to have proper documentation
Your clients must keep adequate records to prove the amount claimed. Contributions of $250 or more to any single charity require written acknowledgment of the contribution by the charity (beneficiary) before claiming a charitable contribution. Written acknowledgement from the charity is required and must be obtained from the charity on or before the earlier of the date when the tax return is filed or the due date of the tax return (including extensions). The written acknowledgement must contain:
- Charity name.
- Amount of cash contribution.
- Description (but not the value) of any noncash contribution(s).
- Statement that the charity did not provide goods or services in return for the contribution, if that were the case.
- Description and good faith estimate of the value of the goods or services, if any, that the charity provided in return for the contribution.
- Statement that goods or services, if any, that the charity provided in return for the contribution consisted entirely of intangible religious benefits.
Noncash contributions
Noncash contributions over $500 require IRS Form 8283, Noncash Charitable Contributions, to be completed and filed with the tax return for the year of the donation. If your client is claiming a deduction for a contribution of noncash property:
- Greater than $5,000, then a qualified appraisal of the noncash property is needed. However, it does not have to be included with the tax return.
- Worth more than $500,000, then a signed qualified appraisal must be included with the tax return for the donation year.
For additional information on charitable contributions and the documents needed to substantiate deductions, see IRS Publication 526, Charitable Contributions. Also see IRS Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements.
To find out if an organization qualifies as a charitable organization for income tax deductions, use IRS' online search tool EO Select Check.
