ACCOUNTING BLOG

Seasonal Reminders: Charitable Deductions

Taxes
by Erin Whitesides

With temperatures dropping and summer coming to a close, the start of fall means at least one thing to many of us: it’s back-to-school season. Many of you may have found yourselves buying school supplies or new school clothes in the last couple of weeks (for yourself or for your kids!). Or maybe you bought yourself a new fall or winter jacket because last year’s coat simply won’t do. So what do you do with those lightly used items that clutter your closet? Donate. You donate because you’re nice. Uncle Sam likes it when you’re nice.

So, before you drop off that donation, here are a few things you should know:

  1. You must itemize your deductions on your Federal tax return to benefit from your charitable contribution. This doesn’t mean that you shouldn’t donate if you don’t itemize. It just means that you don’t have to keep track of your donations.

  2. The IRS wants you to substantiate your non-cash donations. This means a receipt from the 501(c)3 charitable organization containing the following information:

    • Organization name
    • Date and location of the charitable contribution
    • Description and condition of the property donated
    • The fair market value of your donation (you determine this; not your accountant, not the charity. Need help? Goodwill Valuation Guide)

    But wait, what about those convenient yet unattended drop sites? Good news. The IRS says that you aren’t required to have a receipt where it is impractical to get one. Just be sure to make a note of each donation you drop with the same information listed above.

  3. The IRS has slightly different rules for deducting cash contributions. You must hold onto the following:
    • Bank record (canceled check, bank statement or credit card statement) that shows the organization name, date and amount of the contribution
    • Receipt (or letter) from the organization that lists the same information and confirms that you didn’t receive anything in return for your donation, or
    • If you received something in return, like at a charitable auction or fundraising dinner, the fair market value of what you received must be noted and deducted from your contribution amount

Like Uncle Sam, Idaho likes it when you’re nice, too. That’s why there is the Idaho Education Tax Credit. This can be a huge benefit on your tax return. When you donate money (not goods) to a qualified educational entity, Idaho will let you take a credit on your taxes of up to $1,000 on a joint return ($500 for individual). For a list of “qualified education entities” see page 25 of the ID Form 40 instructions. Here’s a chart that outlines what your potential out-of-pocket cost of your donation could be, assuming a 35% marginal tax bracket:

Net Out of Pocket Costs

If your tax bracket is less than 35%, your benefit from itemizing deductions will reduce in this example. But either way, there’s a pretty significant difference between your charitable contribution and the true out-of-pocket cost to you.

Idaho also allows a small credit for non-cash donations to certain youth and rehabilitation facilities for a maximum credit of $200 ($100 for individual).

So that pretty much settles it. If you haven’t already started making your charitable donations for the year, start doing so now before you forget with the coming holidays. And just remember, when you do, be sure to keep records!