Giving for the holidays

Continuing with the theme of last week’s blog, about giving gifts, due to the fact the Holiday Seasons are here. You may consider giving to charities, and yes it is a tax deductible expense, but bear in mind there certain limitations and requirements to actual claim charitable gifts and contributions as a tax deduction.

First of all, a contribution to charity has to be to an actual charitable organization that has been registered with the IRS as a public charity, which is a tax exempt organization that applied to, and accepted by the IRS, as a public charity as a § 501(c)(3) organization. Without this special designation from the IRS, the individual contributor to the organization cannot claim the contributions as a tax deductible charitable contribution. The IRS does maintain a list of organizations that are § 501(c)(3)s on its website. So, be sure the contributions that you are planning to make, before the year is up actually goes to a recognized charitable organization by the IRS.

Secondly, charitable contributions to public charities is an itemized tax deduction, meaning that there are certain tax deduction one can list out and deduct against his/her gross income (e.g. medical expenses, mortgage interest, real estate taxes, etc.). However if a person does not have that much tax deduction to list out, or to itemize, then he/she can just claim the “standard deduction” that the IRS allows. So, if the charitable contributions that were made during the year do not add significantly to a person’s other itemized, or listed, tax deductions then possibly the tax deduction for charitable contributions cannot be claimed.

Thirdly, if a person receives a token item or benefit for the charitable contribution, then the transaction is partially a sale, and partially a charitable contribution. For example, if a person gave $100 to a public charity, and the public charity gave the person a $10 shirt for the charitable contribution, then the actual charitable contribution was $90 ($100 minus the $10 shirt). So, the difference between what was given to the charity and the fair market value of the token item would be the actual charitable contribution one could actually claim.

Finally, just like everything else in federal tax law, there is an income limitation on charitable contributions. A person can generally give to most charities up to 50% of his/her gross income, and if a person does exceed this limitation, he/she could carryover the excess of charitable contribution into future years, for up to five years.

These are some of the limitations on the tax deduction for charitable contributions, so before you make your planned charitable contributions for the Holiday Season, please contact us at info@kayatax.com and we can review to see if any of these limitations prevent you from claiming your planned charitable contributions as a tax deduction.