Some people give out of the goodness of their own hearts.
Some people give because their religion demands they do.
Some people give because they want attention.
And some people give to get a tax deduction.
It’s this last one we are going to address here.
You see, not all gifts to charity are going to be deductible on your individual income tax return.
Why you ask?
It’s most likely going to be one of 4 reasons, although there are many more rules, but these are the most common scenarios:
You don’t itemize, so you can’t possibly take the charitable gift deduction.
This is a commonly misunderstood topic, and it’s also one that shows up in most year-end tax advice articles
If you look carefully, the only place that charity is mentioned on your Form 1040 is on Schedule A: Itemized Deductions. So, if you can’t exceed the standard deduction with your itemized deductions, you lose out on any gifts to charity you made during the year.
Unfortunately for you, most charities don’t promote that fact very well since it may very well mean they receive less money because of it.
You “donated” money in the form of gambling.
Sad to say that means bingo day at the church, that charity “Vegas Night”, or the raffle for the children’s hospital are no-gos on your tax return.
The good news, however is that since they are considered gambling, you can take the losses against any potential gambling winnings you may have throughout the year (you can only bring the total down to $0, you can’t claim a loss on gambling activities).
You received some sort of benefit from the donation.
This is more common when it comes to special dinners that go to benefit a particular charity. In such cases, you pay for a ticket, but you must also take into account the cost of what you are receiving in return (in this case it’s dinner). If you buy the ticket for $100 and the meal costs $75 regularly, you can only claim a deduction for the $25 in excess of the value of the meal you received.
This also is common with theater and sporting events, concerts, and balls as well, but the same holds true. You can only deduct the portion that is in excess of the market or face value of the cost of the event.
Another common example is College Alumni Associations and sporting tickets. If any payment goes toward a ticket, the deduction is reduced by the cost of the ticket. Even though you are giving the money to the University, you are getting something of value in return and therefore cannot deduct that portion of your payment.
You simply didn’t give the money to a qualified charitable organization.
Your kid’s Little League may not be a recognized charitable organization in the eyes of the IRS, so any money you give them will not count as a charitable deduction (and remember from #3, you can’t deduct those raffle tickets either way!).
It may not be an outright scam, but many organizations just don’t know what they are supposed to do in order to be recognized by the IRS so that the money people give them can be considered as a charitable donation.
It’s really up to you to find out before giving any money, but the IRS makes it pretty easy…just use its Exempt Organization Checker to see if the group you plan on contributing money to is qualified or not.
Look, would it be nice to know ahead of time when your donation is a tax write-off? Sure it would. But you know what, you can know, and not while you’re having your accountant is preparing your tax return. All you need to do is call your accountant before you do anything. You can even call the IRS to ask them!
There isn’t any excuse for getting caught with your pants down in a situation like this.