Types of Donations That Are Not Tax-Deductible

Charitable donations were not always tax-deductible. The charitable deduction tax was introduced at the beginning of the last century and has offered Americans tax breaks ever since.

Despite the introduction of charitable deductions, not all donations are tax-deductible. Depending on the amount, type of donation and time of the donation, the eligibility of the contribution can be affected. Just because a gift is given with charitable intent or to an organization that needs it to survive, it does not mean it is tax-deductible. If you are looking to deduct donations on your annual tax return, it is important to be aware of these issues before you donate. There are certain factors to look out for when donating cash or noncash property to charity in order to ensure its eligibility.

Qualified Organizations

Not all donations can benefit you financially. You cannot make a donation to just any charitable organization and expect to receive a tax benefit. Only those who are qualified by the IRS can receive tax-deductible donations. However, not all 501(c)(3) organizations qualify for tax-deductible contributions, such as select civic organizations. Similarly, an organization does not have to be registered as a 501(c)(3) organization in order to be qualified. These minor variations can cause confusion, making it even more crucial to determine the eligibility of an organization before you donate. Asking an organization if they qualify for a tax deduction is a simple and quick way of determining their eligibility. Here are some types of eligible categories that allow tax-deductible donations:

  • State and federal governments. Note that these donations must be used only on public projects.
  • Foundations and nonprofits.
  • Organizations such as trusts and funds, community chests and corporations are eligible.
  • Religious organizations, schools and hospitals.
  • Select veteran organizations.

In addition to the above criteria, the entity must be qualified under section 170(c) of the tax code.

Here are some organizations that are typically not eligible:

  • Social and sports clubs
  • Labor unions
  • Select foreign organizations
  • Personal profit groups
  • Political lobbying groups
  • Individuals or specific people
  • Political candidates or organizations

It is not the organization’s responsibility to make you aware of their tax-deductible status. If you want to deduct donations, you must be aware of these rules in order to get the most out of your contributions. If you attend an event that is raising funds for a charitable cause, make sure you ask if they are being operated by a qualified organization. Otherwise, the donations you make cannot be deducted from your taxes.

Donations That Are Not Tax-Deductible

Although there is a vast array of donations that are tax-deductible, there are some that cannot be claimed, regardless of the organization’s status. Primarily, these restrictions lie in the way the donation is received and the circumstances of the donation, itself. Here are a few examples of donations that are not tax-deductible.

  • Donations from which you benefit – If you benefit from a donation, you can only claim the part of the donation that you did not benefit from. For example, if you buy a ticket to a charity dinner, you can only deduct the amount that is additional to the value of what you received. For example, you would have received a meal and possibly a gift bag. The value of these items must be offset against the ticket price, and then you can claim the difference.
  • Your time – Your personal time or services cannot be deducted. This includes time spent volunteering for a qualified charity.
  • Personal Expenses – You cannot claim personal expenses that do not directly relate to your work with the qualified charity. For example, any meals you eat while carrying out services for an organization cannot be claimed, unless it is strictly necessary that you are away from home while doing these services. This differs from out-of-pocket expenses incurred while volunteering for a qualified organization. These expenses can only be claimed if they are unreimbursed and the direct result of working with the qualified organization.
  • Appraisal fees – For the most part, appraisal fees cannot be claimed as part of a charitable donation. Some fees can be claimed as miscellaneous deductions. However, these allowances are subject to specific restrictions.
  • Certain clothing or household items– The IRS requires that all donations of household items or clothing are to be in good or better condition to qualify for a tax deduction. There are some allowances for items over $500, however, appraisal documentation must be included.
  • Raffles – The cost of a lottery ticket or similar fundraising items, such as raffles, cannot be claimed, even if they are used and obtained at a charitable event.

Disqualifying Factors

Even if you make a tax-deductible donation to a qualified organization there still may be some factors that prevent you from using the donation as a deduction on your tax return. These restrictions can be the result of bad timing and missing documentation.

 

Documentation

If you do not submit the correct documentation for each contribution, they cannot be claimed. Required documentation differs between donations, depending on their type and amount. Aside from the standard IRS forms that are required, additional records need to be submitted, such as appraisal forms, receipts and written confirmations. These records are a few of the items that are needed to verify a charitable donation and secure a tax deduction. If you do not have the right documentation the deduction could be disallowed.

End of Year

The timing of your donation also plays a key role in its eligibility. The date of the donation must be made in the same year that you are claiming your deductions. The specifics of this date are slightly different for certain donations. However, in general, this date has to reflect the actual time of the donation and not the date a donation was initiated. For example, if you order the donation of a stock on a certain date but the donation is not completed until after December 31st, you cannot claim this charitable contribution for that tax year. Payments, such as checks, are dated from the time they are mailed, while credit card payments are dated when they are charged.

 

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