What Makes a Donation Tax-Deductible?

January 22, 2014 | By: TaxCure Staff

tax deductionsWhen it comes to donating to charity, it’s important to understand whether or not you are actually making a tax-deductible contribution. If you don’t plan to itemize on Schedule A in order to deduct your contribution, it doesn’t really matter what sort of donation you are making. However, if you want your donation to “count” in a way that reduces your tax liability by reducing your income, you need to make sure that it truly is tax-deductible.

Vet the Charity

Your first move is to vet the charity. In order for your contribution to be tax-deductible, it needs to be made to a qualified organization The IRS offers a handy tool that can help you check to see if your preferred organization qualifies.

Organizations need to be non-profit, and they shouldn’t be involved in supporting specific political candidates. These organizations should be operated for charitable, religious, literary, educational, or scientific purposes. Organizations with missions to prevent cruelty to children and animals also qualify. Make sure that your charity is approved before you move forward.

Non-Deductible Contributions

  • Realize that there are a number of contributions that are non-deductible. You might think that the cause is a good one, but it doesn’t change the fact that you won’t get a tax benefit for contributing. This includes contributions to:
  • Individuals 
  • Organizations that aren’t qualified (see the IRS checker tool) 
  • Contributions that benefit you in some way 
  • Donor-advised funds 
  • Partial interest in a property 

On top of that, you can’t deduct the value of your time or services. So if you volunteer your time, you can’t deduct the value of the hours you work, even if you are offering help to a qualified charity.

It’s important to note that contributions made even to qualified organizations still might not qualify. A good example comes from purchasing Girl Scout Cookies. While the Girl Scouts are a qualified organization, the reality is that you receive a benefit when you purchase cookies. It’s not a true contribution — you’ve received a product for your payment! In order to make a true contribution, you need to write a check directly to the Girl Scouts, and not get anything in return. You could also buy the cookies and then give them back to the Girl Scouts, which has a program for donating such cookies to food pantries.

One of the interesting debates right now is that of contributions to religious organizations. While there are no tangible and immediate benefits, some opponents of the deduction of religious contributions point out that salvation is a benefit that many expect to receive as a result of their donations. The controversy is even more pronounced regarding religions that restrict membership privileges for those who don’t make contributions. However, those membership privileges are still intangible and related to the nebulous concept of the soul’s salvation, rather than with earthly benefit. So, for now, the IRS does allow it, since you don’t actually end up with a benefit in this life.
As you prepare your taxes this season, make sure you review your charitable contributions to ensure that they really are tax-deductible.