Pacific Business News

November 19, 2004

Rules change on charitable giving and tax deductions

by Sally Little

As the end of the calendar year approaches potential donors focus on end of the year giving.

Donations are made to support a favorite nonprofit and also to capture current year tax deductions.

Donors should recognize that the rules and limitations for tax deductions for charitable gifts are complex and change periodically. Fundraising professionals, accountants and attorneys are available to help donors determine whether their contribution qualifies for a tax deduction.

In addition, the following tips should help the donor.

* Recognize that not everyone qualifies for a tax deduction. Taxpayers may deduct contributions to a charity only if they itemize their deductions on Schedule A of Form 1040. Although lawmakers on the federal level have discussed changing the tax law to end this itemization requirement, no changes have been made as of Nov. 9.

* Verify whether the nonprofit is qualified to receive tax-deductible contributions. Generall, an entities organized and operated for religious, charitable, educational, scientific or literary purposes and/or the prevention of cruelty to children or animals are qualified to receive tax-deductible, contributions. These entities typically have 501(c)(3) tax-exempt status.

However, there are additions. Donations to any public school qualify as tax-deductible as well as those to private schools with 501(c)(3) tax-exempt status. War veterans’ organizations and certain nonprofit cemetery companies also may qualify.

Donors may request a copy of the organization’s letter of determination for tax-exempt status issued by the Internal Revenue Service. Nonprofits are required to have this letter available to the public upon request. Donors also may call the IRS toll-free at (877) 829-5500 or go to www.irs.gov and search for Publication 78, Search for Exempt Organizations. This publication also tells the donor the percentage of the contribution that is tax-deductible.

If an organization is not eligible to receive tax-deductible contributions and it engages in fund-raising activities, the Internal Revenue Code requires the organization to disclose this information in a conspicuous and easily recognizable location.

* Know the different tax-deductible limitations that apply to a nonprofit. The IRS classifies a 501(c)(3) tax-exempt nonprofit corporation as either a public charity or private foundation, and different giving limitations apply. For example, if a donor gives a public charity a gift of appreciated property that he or she has held for one year or more, the donor may deduct the fair market value of the property. On the other hand, if the appreciated property is given to a private foundation, the donor may deduct only the basis. This is generally the cost to purchase the property.

* Understand that certain donations are not tax-deductible. The value of your time and services is never deductible. The value of your time and services is never deductible. For example, if you volunteer your time for a nonprofit, you cannot assign a dollar amount to this and claim it as a tax deduction. If you provide free rental space to a nonprofit, you cannot take a deduction for the rent you would have received on the open market.

For more information on whether a contribution is tax-deductible go to www.irs.gov and search for Publication 526, Charitable Contributions.

* Keep up-to-date on changes. On Oct. 22, President Bush signed into law new requirements regarding the tax-deductibility of car donations. Beginning Jan.1, the maximum a donor can deduct is the fair market value of the automobile. The highest value of the car as found in the used-car pricing guide is no longer acceptable in determining the tax-deductible amount. For more information search for Publication 4303 and 4302 at www.irs.gov.

* Secure acknowledgements for contributions. In general, donors who give contributions of $250 or more must receive an acknowledgement that states the amount of cash or a description of the property received and whether the nonprofit provided any goods or services to the donor in exchange for the donation. The acknowledgement also should include a description and good-faith estimate of the value of such goods or services provided by the donor in exchange for the donation.

If a cash donation is less than $250, the donor’s a cancelled check, bank statement, receipt from the charitable organization or other reliable record will suffice.

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