On the twelfth day of Christmas, my true love sent to me 12 drummers drumming, 11 pipers … we’ll spare you the rest but have you ever wondered how much the “true love” spent on all those gifts? According to PNC Bank, this year it would cost $34, 558.65 to give someone all of the things mentioned. (Check out PNC's page for fun facts about their annual Christmas Price Index, including how they determine the cost of eight maids a-milking.) So how does our true love’s generosity help him/her at tax time? Unfortunately it doesn’t, because these presents break one of the primary rules for deducting gifts. Since this is the time of year when many taxpayers give generously, let’s take a look at the rules for deducting charitable gifts on tax returns.
To qualify for a tax deduction, gifts must follow several guidelines. Perhaps the most important of these is the recipient must be a qualified charity, such as a church or qualifying non-profit. Gifts to individuals and political groups do not qualify, so obviously gifts to friends or true loves don’t qualify either. Because many social media fundraisers benefit a specific person, they generally are NOT tax-deductible, even though many erroneously say they are. When in doubt, check the IRS’s database of qualified charities (IRS Charity tool) or contact your tax professional.
Qualified deductions are taken on Schedule A, so the taxpayer must itemize to take advantage of them. Current tax law requires a single person to have more than $6350 of itemized deductions ($12,700 for a married couple) before the choice to file Schedule A instead of taking the standard deduction makes sense.
If anything is received in return for a monetary donation (such as a meal, an event ticket, or a thank-you gift), only the amount of the donation over the fair market value of the item received can be deducted. Many charities list the value of items received on the gift receipt; be sure you keep this for tax time. If you donate property instead of money, you must place a fair market value on each item given. We suggest you keep a detailed list of all items donated. The IRS requires donations of clothing and household goods to be “in good condition” to qualify for a tax deduction. Most charities that accept such donations do not assign values, but organizations such as Goodwill and the Salvation Army publish online guides. It is the taxpayer’s responsibility to determine the fair market value of donations.
There are additional rules for documenting monetary donations over $250, for donating vehicles, and for donations with fair market values in excess of $500. Your tax professional can help you with these rules. The IRS has a helpful guide for deducting charitable donations here.
If you need help determining the deductibility of charitable donations, contact us. And even though giving your true love 7 swans a-swimming or 3 French hens won’t help when it’s tax time, have fun giving them anyway!