What donations are not tax-deductible?
Political contributions are not deductible. And if you give money to a charity and designate specifically whom it goes to, that is not a charitable gift. If a family lost their house in a fire and you donate money at the bank that set up a fund for that family, that’s not a charitable donation; that is a gift to the family. A charity has to have control over what it uses the money for. That’s not something the donor can dictate.
You also can’t take a deduction for your time. However, your costs can be deducted, so if you’re volunteering and incur the cost of driving to get somewhere, you can deduct at the charitable mileage rate of 14 cents a mile. You can also deduct the cost of materials. For example, if a jeweler makes a ring and donates it for auction for a charity, the materials used to create that ring can be deducted.
Church contributions are also not deductible, unless they are documented. In the past, people would put a dollar in the basket at church every week, and at the end of the year, claim the $52 that they gave. Now you can’t do that. If you don’t have a receipt for that and you get audited, the IRS would throw that out.
It didn’t used to be this complicated. But people made up contributions, or far over-inflated the value of what they’d given. Charitable contributions can be a trigger for an audit, so make sure any deductions you take can be documented.
How can making charitable donations help with estate planning?
The regulation hasn’t been extended yet, but in 2009, if you were older than 70-and-a-half, distributions from an IRA could go directly to a charity and you didn’t have to include those distributions in your income. You don’t get a charitable deduction, either, but it can benefit your state taxation by reducing the amount that otherwise would have been included in adjusted gross income. It’s a good mechanism for giving money to charity and, at the same time, do some tax planning.
You can also help your estate planning by getting money out of the estate. If your heirs inherit your IRA, they have to pay income tax on the distribution, plus your estate pays estate taxes. IRAs in an estate are taxed very heavily, and you can avoid some of that by designating a charity as the beneficiary.
These are just some of the common issues that tend to trip up individuals trying to claim deductions for their charitable contributions. To better understand how the IRS’s charitable deduction rules apply specifically in your situation, contact your tax adviser.
Annette Hoelzer, CPA, MT, is a managing director of the Columbus office of SS&G Financial Services, Inc. She specializes in nonprofit tax issues. Reach her at (866) 385-2388 or [email protected].