Charitable donations are a win-win for organization and donor

Carol Gubb, The Daily Record Newswire

As nonprofit organizations continue to face reduced governmental and private funding in this uncertain economy, donations are an important part of how they continue to carry out their mission. The donor’s contribution, whether it be the form of time, money or goods, not only benefits the organization but may provide a tax benefit to the donor under the Federal tax law. Organizations can maximize donations by not only continuing to do their good work but also to inform donors of the additional tax benefits they can receive through their donations.

In order for a donation to be tax deductible for a donor, an organization must be a qualified exempt organization under tax law. Qualified exempt organizations are generally churches, religious organizations, and those under 501(c)(3) tax status. For verification, donors can check the IRS website where an “Exempt Organization Select Check” feature is available. Organizations should review this site periodically to ensure they are properly listed.

In order for donations to be tax deductible by the donor, the donor must have a bank record or written communication from the organization for any donation over $250. Although it is the donor’s responsibility to obtain this documentation, the organization can assist by providing this written acknowledgement to the donor.

The organization’s written acknowledgement should include the organization’s name, amount of donation, and either a statement that no goods or services were provided in return for the contribution or a good faith estimate of the value of goods or services provided in exchange. This communication can be written or delivered electronically and should typically be sent no later than Jan. 31 for the previous year.

Often organizations may also rely upon donations of non-cash contributions to carry out their purpose. Non-cash contributions are also tax deductible to the donor. The written communication is also required for any contribution over $250, but the organization does not need to provide the fair market value of the items donated as part of the written acknowledgement. It is the donor’s responsibility to determine the fair market value and, for donations over $5,000, the donor must have a written appraisal to support the fair market value.

Volunteers may provide a pivotal role in a nonprofit organization’s ability to carry out their purpose. Although the value of a volunteer’s services or time is not tax deductible to the individual, any out-of-pocket expenses the volunteer incurs is tax deductible.

In order to receive this tax benefit, these expenses must be unreimbursed, directly connected with the volunteer services, incurred only because of the services provided, and not be personal, living or family expenses. As with monetary and non-cash contribution, unreimbursed expenses over $250 require written acknowledgement from the organization.

As organizations are encouraging donors to contribute, it is important to know that only donations that actually occur are able to be tax deductible. Pledges or promises to give are not tax deductible for the donor until actually donated. Additionally, costs of raffle, bingo and lottery tickets are not tax deductible. An organization can encourage large donations through educating donors that while there are limits on the amount of charitable contributions that can be deductible in one year (based on adjusted gross income), the excess can be carried forward to the next tax year, and up to five years.

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Carol Gubb, CPA, is a manager with Mengel, Metzger, Barr & Co. LLP and can be reached at Cgubb@mmb-co.com or (585) 423-1860.