With the current economy as strong as it has been over the last several years, charitable contributions by both corporate and personal taxpayers have been on the rise. Aside from the obvious, feeling good and doing something for the community are significant reasons; but there are also tax issues to be considered. Would you rather give your money to Uncle Sam, or to the charity of your choice where often the taxpayer may have some control as to how the money is used and save a significant amount of taxes in the process?
Taxpayers can deduct contributions of property or money made to qualified organizations. Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific, literary or that prevent cruelty to children or animals. The IRS provides a cumulative list of qualified organizations called Publication 78. This list includes most organizations, but in case there is a non-for-profit organization not listed, you can call the IRS.
Because there are so many organizations who claim to be non-profit entities, a quick call to the Illinois Attorney General's office will cure any curiosity one might have about whether an organization is a qualified one. Many organizations solicit money from companies or individuals, claiming that their donation is tax deductible. If they are not a qualified charity listed by the IRS or the Illinois Attorney General, the contributions made to such organizations are not deductible.
Cash contributions must be voluntary and generally without any intention of receiving or expecting to receive anything of equal value in return. If a taxpayer does receive some benefit, the amount deductible is the excess of the contribution over the value of the benefit received.
A taxpayer is required to keep good records of cash donations, especially if these are in excess of $1,000. Many organizations send letters at year end recognizing such donations, which should be saved for tax purposes. The following is a good guide for record keeping for donations:
- Less than $250: Written communication or a letter from the charity is sufficient.
- $250-$500: written substantiation including an estimate of the fair value of the goods given.
- $500-$5000: All of the above, also including basis cost records as to how the property was obtained, from whom and how much was originally paid.
- Over $5000: Detailed documentation must also include an independent appraisal of the property donated from a qualified appraiser.