Tips to avoid problems when deducting charitable contributions

One of the most popular deductions is the charitable contribution deduction, but the IRS has a lot of rules relating to these deductions.

First, the organization that you are claiming a charitable contribution to must be qualified under section 170(c) of the Internal Revenue Code. To be qualified, the contribution must be to:

1. A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;

2. A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;

3. A church, synagogue, or other religious organization;

4. A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;

5. A nonprofit volunteer fire company;

6. A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);

7. A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;

8. A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.

Another good rule of thumb is to see if your organization is listed on the attached link.
In my experience, the IRS has used this list in audits to determine whether or not the contribution is legitimate. I’ve had clients write checks to organizations that are not on the list and the IRS has disallowed the deduction.

Second, if the contribution is in cash, you should keep the original receipt. If you don’t have one, then it may be difficult to claim it in the event of an audit without some other form of proof.

If the contribution is of property, only the fair market value is deductible. The FMV can be complicated, especially when dealing with used household goods. Publication 561 has more detail as to how to determine the different fair market values for non cash contributions.

Finally, generally speaking, contributions to charitable organizations may be deducted up to 50 percent of AGI and contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are limited to 30 percent AGI.

The 50 percent limitation applies to:
(1) all public charities
(2) all private operating foundations
(3) certain private foundations that distribute the contributions they receive to public charities and private operating foundations within 2-1/2 months following the year of receipt, and
(4) certain private foundations the contributions to which are pooled in a common fund and the income and corpus of which are paid to public charities.

The 30 percent limitation applies to:
1) private foundations other than those previously mentioned that qualify for a 50 percent limitation, and
2) other organizations described in section 170(c) that do not qualify for the 50 percent limitation.

A special limitation applies to certain gifts of long-term capital gain property. A discussion of that special limitation may be found in Publication 526.

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