What Donations are Deductible?
This arose in answer to a question whether dues paid to a 501c non-profit club could be tax deductible. The purpose is to give people a better idea of what types of donation to Rescue are potentially deductable as a charitable contribution and what type of documentation or records you need to maintain.
For discussion of why an adoption fee cannot be taken as a tax deduction please see Can an Adoption Fee be claimed as a Tax Deduction? . But read this present article first.
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The question was asked whether dues paid to a club which is a 501c non-profit organization could be tax deductible. The response below deals with deductions for Rescue contributions generally as being "charitable"contributions and / or "educational" contributions . (An item such as a club membership not deductible as a charitable / educational contribution might still qualify under some other heading, eg as a professional or business expense if membership in that club helps you to engage in work that brings you in income .) All of what is said below assumes that the organization to which you are donating IS in fact a non-profit educational or charitable organization and is recognized as such by the IRS and by your state tax laws. Generally the Federally recognized ones come under section 501c, and that is why this term will come up again and again.(For discussion of why an adoption fee cannot be taken as a tax deduction please see Can an Adoption Fee be claimed as a Tax Deduction? . But read this present article first.)
Where a "donation" is made partly in return for any thing of value or anything of benefit to the donor, the general rule, as I understand it, is that only that portion of a "donation" for which you do NOT receive any goods or services in exchange is considered a genuine donation and is tax deductable. Thus for example, if you buy a $100 ticket to a charity dinner and the dinner itself is considered to be worth $35, then the remaining $65 would be a donation and deductable. Sometimes of course it is very very hard to figure out the actual cash value of the goods or services you the donor are getting in exchange. Eg if it were a charity dinner with entertainment, both the dinner and the entertainment could be hard to value -- indeed I've attended some that were rather dreadful as well as some that were superb.
Under that concept , memberships dues should generally NOT be deductable donations as in exchange you are receiving any services and goods (newsletter etc) that come with membership. Some groups get around this by saying that if you donate a certain amount, they will honor you with a free membership and send you their newsletter, which is really the only benefit of the "membership". It's easy to view the value of the newsletter as negligible, since the only persons who would find it interesting are those who are also likely to donate to that particular cause. And certainly plenty of other charities send out some kind of newsletter to let you know what they are doing , which of course is to encourage you to make further donations. Nothing wrong with that. But if it is a club which also has social activities or a really great magazine or offers things like training events or parties or referral services, then it seems to me that you are receiving some valuable benefit in excahnge for your dues. In reality if your check for let's say $35 , the normal membership dues, has a notation on it that says "dues 2004" then it will probably be regarded as being in fact non-deductable dues. But if that same check had no notation at all or if it has the notation "donation", why you might very well list it on your tax return as a donation and keep the returned check as your proof, and the IRS and state tax sharks wouldn't bother to wonder or to challenge it, especially as these are usually rather small sums that would have negligible impact on the taxes due. So in that case it is really up to your own sense of ethics and/or your paranoia about getting caught. Realistically, unless you are getting audited for other reasons, there is little chance of getting caught.
I wouldn't worry about adjusting to subtract the value of that hat or pin or other little chatchki that you may have recieved as a thank you present. It's cash value is negligible. Eg every year Morris Animal Foundation sends me a thank you bookmark; by comparison with such items at the local bookstore, it might be worth as much as $5. Likewise if you make a donation and your name is inscribed on a Donor Roll of Honor or similar display at the organization. Likewise that incidental monthly newsletter.
Also suppose a few years ago you contributed say $100 to a small Rescue group which you thought or assumed had 501c status and that you claimed the deduction on that year's tax return, but now some years later you find out that the group did NOT actually have 501c status, should you worry ? Probably not. At worst, it was an innocent mistake, so at very worst if the IRS belatedly catches on , you would owe a tiny amount of tax on that donation plust penalty interest. If the IRS didn't challenge it that year, they aren't likely to do so later on. If it's been more than 7 years ago, forget about it, because the statute of limitations has run. The only things that can get you in trouble 7 years later are a complete failure to file (which will usually be noticed much sooner !) or an actually fraudulent return.
Now another rule worth keeping in mind is that for any donation above a certain amount, and up to now that has been $200, the IRS does expect you to have an acknowlegement letter from the recipient 501c organization that says something on the order of "thank you for your dontaion of $xxx made on date such and such (date within the year for which the return is being filed) to our organization the ZZZ foundation which is a non-profit 501c organization. and this is to affirm that you recieved no goods or services in exchange for your donation". The "received no goods or services" should be considered to be "magic words' that must be spoken to make the spell work.
These letters are even more important if the donation is made in some form other than money. That kind of donation is deductable at its market value on the date you donated it -- NOT the amount you actually paid for it !! eg that ugly old oil painting that you found in the attic (or bought for $5 at the Thrift Shop because you wanted the frame to use for something else) and took to Antiques Roadshow and learned was worth $5000 and since you didnt want to keep it (or have to insure it) and didnt want to auction it (and pay capital gains tax plus auction fees) you donated it to the ZZZ foundation (Morris Animal foundation, UCDavis Vet School, Bouvier Befrienders). In this case the letter should also state some kind of appraised value, or if the ZZZ foundation has sold the item could state the amount they actually recieved as an indication of market value. For stocks, the value is based on the high and low it sold for on the stock exchange on the day you donated it ---even though you might have paid much more or much less when you bought it -- which is why donating appreciated stock or that ugly old oil painting can be a terrific deal for you the donor as well as for the recipient charity.
The big experienced charities, such as Morris Animal Foundation or your local Vet School, are very aware of these requirements and will make sure to send you the needed letter. But a lot of dog Rescue groups are completely unaware of this issue and so you may need to ask them and inform them of exactly what you need.
Now for you really big donors, there are some limits on how much deduction you can take in a given year and how much has to be carried over to future years. for money donations I think the limit is 50% of your Adjusted Gross Income and for non-cash (the stock, the painting, etc) it is only 30% of your AGI. But of course if you are in that category , well you are probably pretty well heeled and you have a good tax advisor who can advise you better than I ever could. and maybe you are even rich enough not to care.
So if you are making any big donations, be sure to have a good tax consultant or CPA to advise you. For the small donations, I wouldn't worry too much unless some other aspect of your tax return is likely to flag it for special scrutiny or audit (eg if you are a lawyer, a hairless primate physician, or if you have a home office or claim large hobby-business losses such as dog-breeding or racehorses).
WARNING : I am NOT a CPA or Tax Expert of any kind. Please regard this article as just an orientation to the subject. Ask your own CPA or Tax Consultant about any specific issues you might have.