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This section explores some of the special rules that apply to charitable contributions, including deductions, non-cash contributions, car donations, etc. The latest tax law changes that were recently passed are also discussed. Use this information to help you make the most of your contributions.
- Tax-Free IRA to Charity Distributions
A provision permits taxpayers age 70½ and over to make direct distributions (up to $100,000 per year) from their Traditional or Roth IRA account to a charity. The distribution is tax-free, but there is no charitable deduction. This provision can be very beneficial to taxpayers who have social security income and/or do not itemize their deductions.
- Special Rules for Car Donations
- Congress has imposed tough rules that substantially limit the deduction for this charitable donation.
- What is a Charitable Organization?
- Money or property that you donate to "qualified" charitable organizations can be included in your itemized deductions as a charitable contribution. But what is a "qualified" charity? The IRS provides an on-line search for qualified organizations.
- Charitable Away-From-Home Travel
- Charitable deductions are allowed only for travel expenses (meals and lodging included) by volunteers who do charitable work for their organization while away from home on the charity's behalf. Unlike other areas of taxes, meals are not subject to the 50% limitation. Any "significant element of personal pleasure" negates a deduction (i.e., not even partial deduction is allowed). Significant personal pleasure is assumed if the taxpayer has only minor duties and is not required to perform any duties for the charity for major portions of the away-from-home stay.
- Tax Breaks for Charity Volunteers
- If you volunteer your time for a charity, you may qualify for some tax breaks. Although no tax deduction is allowed for the value of services performed for a charity, there are deductions permitted for out-of-pocket costs incurred while performing the services. The normal deduction limits and substantiation rules also apply.
- Charitable Contribution Substantiation Rules
- Cash Contributions - Cash contributions, regardless of the amount, must be substantiated with a bank record or written communication from the donee showing the name of the charitable organization, date and amount of the contribution.
- Deduction Limits
- Charitable deductions are limited by income depending upon the type of contribution. Contributions in excess of the deduction limits described (1), (2), and (3) below, may be carried forward for five years. An amount can be carried over even though an individual does not itemize their deductions in the year of the contribution (carryover then equals excess over 50% of AGI).
- Foreign Charities
- Generally, no deduction is permitted for contribution to a foreign charity. However, that does not include contributions to U.S. Charities that perform part of their charitable function outside the U.S. An exception to this rule is Mexican, Canadian and Israeli charities.
- Non-Cash Contributions
When you give away household items like clothing, appliances and other goods to a qualified charity, your generosity can add up to a tax write-off if you itemize your deductions. The amount of your deduction is generally the donated property's "fair market value" (i.e., the price similar property would sell for in the open market).
- Personal Benefits Not Deductible
- Givers may deduct contributions of cash or property, but only to the extent they received no personal benefit from the donation. Often, the IRS attributes at least some (if not total) personal benefit to amounts expended for items like dinner tickets, church school tuition, YMCA dues, raffles, etc. To determine the contribution amount, subtract the FMV of the "personal benefit" item from the cost and deduct the remainder. Most charities now allocate the deductible, nondeductible portions.
- Property Donations
- In addition to noncash charitable contributions, taxpayers can make certain donations of property as outlined below.