What Is a Charitable Donation?
A charitable donation is a gift made by an individual or an organization to a nonprofit organization, charity, or private foundation. Charitable donations are commonly in the form of cash, but they can also take the form of real estate, motor vehicles, appreciated securities, clothing, and other assets or services.
Charitable Donations Explained
Charitable donations often represent the primary source of funding for many charitable organizations and nonprofit organizations. In most countries, a charitable donation made by an individual will provide him or her with an income tax deduction. Charitably donated goods are considered zero-rated goods.
How Charitable Donations Can Be Claimed as Deductions
In order to claim a deduction for charitable contributions, itemized deductions must be submitted with tax filings. The Internal Revenue Service requires such donations to be made to organizations that qualify under the tax code as charitable organizations. Funds given to individuals, even if done as an act of charity, does not qualify as a tax-deductible charitable donation.
Sometimes charitable donations are made in conjunction with receiving a service or good as a benefit. This can include gaining entry to an event such as a dinner, sporting event, performance, or charity ball. For tax purposes, only the amount given that is above the fair market value of the received benefit can be deducted. In other words, if the tickets to a charity baseball event are priced at the same level as a standard ticket to a game, that expenditure could not be deducted. However, if the tickets were priced at a premium above the regular value of such a ticket, that portion of the expenditure could be claimed as a charitable donation.
Records of charitable donations must be kept for cash or other monetary contributions if the donation is to be claimed for tax deductions. This may include a receipt or written communication from the charitable organization that cites the amount contributed, the date, and the name of the organization.
Other forms of property donated to charities can also be claimed for a tax deduction at their fair market value. If items such as automobiles or investments that have appreciated in value are being donated, there may additional rules that must be adhered to for deducting the donation. Furthermore, records must also be kept for such donations if they, along with cash contributions, are worth at least $250. For charitable donations of even greater value, there may be supplemental forms that must be submitted with tax filings. Noncash property donations that are worth more than $5,000 will also require an appraisal of the property that affirms its value.