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Tis the season for Giving | Deductible vs. Nondeductible Contributions and their limits.

Posted by Julia E. Backa, MSBM on Dec 18, 2017 8:31:00 PM
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Not everyone thinks the holiday season is the most wonderful time of the year. The Huffington Post, CBS News, Harvard Medical School, HealthLine, etc. all have articles regarding the causes, and tips for coping with the holiday blues. Stress caused by finances, lack of time, and high expectations is mentioned as a frequent contributing factor. To cope a few sources recommend starting a new tradition involving volunteering and making charitable contributions. Perhaps this is because both volunteering and donating to charity have been found to increase happiness.

To do our part in spreading holiday cheer, we not only want to join the bandwagon in encouraging others to donate and volunteer, we want to help those that do, better understand the ins and outs of deductible vs. nondeductible contributions and the limitations on charitable contributions.

Identifying the types of contributions that are deductible vs. those that are nondeductible.

 

Deductible

 

Nondeductible

Money or Property given too: 

  • Churches, synagogues, temples, mosques, and other religious organizations.
  • Federal, state, and local governments, if the contributions are solely for public purposes.
  • Nonprofit schools, hospitals, and volunteer fire companies.
  • Public parks and recreation facilities.
  • Public charities such as Salvation Army, Red Cross, UNICEF, etc.
  • War veterans' groups.

Money or Property given to: 

  • Civic leagues, social, and sports clubs, labor unions, and chambers of commerce.
  • Foreign organizations (other than those mentioned under deductible contributions).
  • Groups run for personal profit.
  • Groups whose purpose is to lobby for law changes.
  • Homeowners' associations.
  • Individuals.
  • Political groups or candidates for public office.

Travel expenses:

I.e. transportation, meals, and lodging expenses, provided there isn't a significant element of personal pleasure, recreation, or vacation.   Also, vehicle expense using actual cost or a standard mileage rate of $0.14 per mile.

Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups. 

Out-of-pocket expenses when volunteering  for a qualified organization:

Provided such expenses are not suitable for personal use.  For instance, a uniform not suitable for everyday wear. 

Value of blood donated to a blood bank 

Donations made via the following:

  • Text messages: 
    donating contributed via an individual's phone or mobile account are deductible in the year that the text message was sent.
  • Credit Card: Donations charged to a bank credit card are deductible in the year the charge was made.
Tuition, both secular or religious. 

Exchange students:

Up to $50 per school month for housing exchange students (grade 12 or lower).  Provided that the student becomes a member of the taxpayer's household via a written agreement between the taxpayer and the charitable organization sponsoring the student.  The student is not required to be foreign.

Value of time or services determined by the taxpayer. 

Foster Parenting:

Payments exceeding payments received from a charitable organization for providing care for qualified foster care individuals placed in the taxpayer's home.  Provided there is no profit or profit motive.

Rental value:

For instance, if you donated a week's usage of a rental property to a charity. 

Donations to foreign charities from countries with income tax treaties with the U.S.:

Donations made to foreign (Canadian, Mexican, and Israeli) charities qualified under U.S. income tax treaties.  

Qualified Charitable Distributions (QCD) from Individual Retirement Accounts (IRAs):

QCDs are transfers from IRAs belonging to individuals of 70.5 years or older to qualified charities. 


 

Limitations on Charitable Contributions:

The deduction for charitable contributions cannot exceed 20%, 30%, or 50% of the taxpayer's adjusted gross income (AGI). The percentage amount depends on whether the contribution is capital gain property or not, and whether the organization it's donated to qualifies as a 50% limit organization or not. 

  • 50% of AGI deduction = may be deducted for the donation of cash or property donated to a 50% limit organization provided the donation is not capital gain property. 
  • 30% of AGI deduction = the donation of capital gain property to a 50% limit organization.
  • 20% of AGI deduction = the donation of cash or property, other than capital gain property, to any organization other than 50% limit organizations.

The Exempt Organization Select Check at www.irs.gov is a great tool that can help you determine the deduction limit percentage of an organization. However, in order to use it you need to already have an organization in mind.  

If you don't already know what organization you want to contribute to sites such as Charity Navigator, GuideStar, BBB Wise Giving Alliance, and Charity Watch can help you decide.  These sites can help you determine which charities will make the best use of your contributions.  They can also help you find charities and foundation benefiting the topics you care about most.

 

Here's to wishing you and yours a Gleeful Giving Season and a Happy New Year!

 

 Contact Us  for Extra Advice on  Charitable Contributions!

Topics: Deductible Contributions, Charitable Contributions, Tax

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