Not All Charitable Donations Become Tax Deductions

Whenever you fill your heart with joy by contributing to a worthy cause, you get the bonus assurance that you’ll see further benefits from the donation come tax time. But the belief is not always well founded, because in the eyes of the IRS, not all charitable donations are created equal.

DollarVersity helps you make sense of tax rules as they relate to charity. Here are some scenarios to consider:

* If you bought tickets to a charitable dinner, you can only deduct the amount above the meal’s cost.

* If you buy a $1,000 charity raffle ticket but end up winning a prize that matches that amount, you can’t deduct any of the $1,000. (Update: Reader Juniper points out that no spending on games of chance can be deducted regardless of whether or not you win).

* If you give a donation but don’t receive anything in return, you can typically deduct the full amount.

Also, if you made a donation in someone else’s name as a gift, you still get the tax benefits of the donation. That means that any donations made in your name aren’t yours for tax purposes.

Charitable Donations Are Not Always Tax Deductions [DollarVersity]

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  1. Quake 'n' Shake says:

    Not All Charitable Donations Become Tax Deductions

    For example: Giving singles to ugly strippers.

    • AcctbyDay says:

      Pick a better strip club… ugly strippers. What’s wrong with you!

      • TheMansfieldMauler says:

        It isn’t exactly giving them money for a tip as much as it is paying them to leave you alone.

        • Cat says:

          That’s why it’s not deductible. You’re getting something for your money – she leaves you alone.

          Donations to attractive strippers are deductible, because there’s no way they are going to give you anything in return for your money.

    • balderdashed says:

      You might not get a charity deduction — but, depending on your “generosity,” you might end up with a disease that could get you a medical deduction.

  2. Rebecca K-S says:

    Well.. I suppose there are probably people here who didn’t know this.

    • nbs2 says:

      I suspect the donation in your name advice is probably going to be the most revelatory for visitors. The whole “I made a donation in your name” thing does, on paper, sound like named person should get the deduction. That’s what I love most about the store “give us a buck” donation things – since they are making a broad corporate donation, they get the deduction. Bah humbug.

      • RandomHookup says:

        Only if the store is claiming the money donated as income. Most stores probably don’t take credit for the donations from their customers as it’s often easy to trace it back (assuming it was part of the bill and not “drop a buck in the bucket” type.

    • Scuba Steve says:

      There are people who shop at Goodwill and Salvation army and consider all their purchases there to be tax deductible. SIgh..

  3. RandomHookup says:

    I had a boss who claimed that his losses on bingo at the local church were a charitable contribution.

    • Back to waiting, but I did get a cute dragon ear cuff says:

      AFAIK, you can deduct losses like this, or legitimate gambling (horses, lottery, etc), only up to the value of your winnings.

      Lottery ticket example:

      Buy $500 over the course of a year and have winnings of $150, the losses offset the winnings, but you can not deduct the $350 as a loss.

      Win $1,000 on the same $500. As long as you can prove you bought $500 (old tickets from the same year) you can claim that $500 against the $1,000 and only pay taxes on $500.

      • juniper says:

        You can indeed deduct gambling losses, but not as charitable. It’s laid out in IRS Pub 525. Raffles are not considered gambling by the IRS, FYI.

      • Bsamm09 says:

        Gambling winnings are ordinary income but the losses are a schedule A deduction. You cannot net them.

      • AllanG54 says:

        You can only deduct the losing tickets that you bought AFTER you won. So, if you gambled big and won on December 30th you can only deduct what you lost on December 31st.

        • Bsamm09 says:

          This is incorrect information. You can lose all year long and win $500 on December 31 and deduct $500 on Schedule A.

  4. TuxthePenguin says:

    (Full disclosure, I am a CPA, but do not rely upon this rough guide as your situation might have a few details that change things. Tax law is complicated, so please either hire me or see another CPA if you want a definitive answer)

    There’s really two steps. First, is the organization a qualified organization? Some “charities” are not the right type to get the deductions. If you have doubts, ask them to give you, in writing, a document stating that they are the right type.

    Second, did you “buy” anything with that donation? They mention a dinner above, but if you gave them $100 for a $50 widget, you really only contributed $50.

  5. rpm773 says:

    Also, if you made a donation in someone else’s name as a gift, you still get the tax benefits of the donation. That means that any donations made in your name aren’t yours for tax purposes.

    The lady down the street bombards us with letters for charitable donations, but the stamped envelops she provides are addressed to his residence. So what happens when I send my donation to the March of Dimes to her? Does she get to record the tax deduction, or do I?

    • RandomHookup says:

      Guess it depends on how she sends it to March of Dimes. Most of the times, folks collect it and send it to the charity without claiming it as their own, but there are always people who like to take any opportunity to cut their taxes, legal or not.

    • TuxthePenguin says:

      Like Random said, it depends.

      But if she claims as a deduction the money you gave her to deduct, technically she has to record that money as self-employment income…

    • Captain Walker says:

      If you make the check out to March of Dimes, you get to deduct it (assuming it gets cashed, and gets cashed by the MoD). If you give her cash, and she writes a check to the MoD, she gets the deduction, unless you can somehow prove the transaction string (good luck with that).

    • Sham03 says:

      http://www.GuideStar.org is a great way to verify the charity is qualified.

      Charities are required to file a Form 990 with a IRS. This form is available to the public for free (through GuideStar.org) where anyone can see how much money they received in contributions, and how that money was spent (such as payments to directors or as assistance to others). As I tell all my friends and family, “How do you know where your contribution is going?” Do some homework and see for yourself. If they are indeed who they say they are, then they will be more than happy to provide you with the information requested.

  6. MrMagoo is usually sarcastic says:

    I regularly donate to Feed The Children…

    in my own home.

    Does that count?

  7. juniper says:

    Actually, no amount of money you spent on a charity raffle ticket is deductible. Zero. It’s very clear in IRS Pub. 526.

    I’m not sure if I can make that any clearer. YOU DO NOT GET A TAX DEDUCTION ON RAFFLE OR LOTTERY TICKETS FROM RAFFLES OR LOTTERIES RUN BY A CHARITY. None, full stop, no deduction. The IRS law is super duper clear.

  8. Lisa W says:

    Fortunately, or unfortunately, I never win anything from raffle tickets so my donation will always be tax deductable. ;-)

    • juniper says:

      Regardless of if you ever win, the money you spend on raffles for charities is never, ever tax deductible.

  9. Lisa W says:

    Fortunately, or unfortunately, I never win anything from raffle tickets so my donation will always be tax deductable. ;-)

  10. mcs328 says:

    I donated $1000 worth of books to my local library but they said they usually resell them for $2-4 a piece. Do I deduct what I bought it for or what the library will resell them for? They gave me a nice little form to fill out.

    • juniper says:

      Donations of in-kind items are sort of tricky. What you say is “$1000 worth of books” is apparently only actually worth $2-$4 on the market. You definitely cannot (correctly/fairly) deduct what you paid for them. You are mandated by the IRS to deduct the “fair market value” of them. The reason the library gave you a little form for you to fill out yourself is because they can’t value them because that is giving tax advice, which the library, as a nonprofit entity, cannot do.

      If I were in your shoes, I would deduct $3 per book, in one lump sum. So if I donated 100 books, I’d deduct $300.

    • George4478 says:

      What the library sells them for does not matter. I donate clothing to Goodwill, but my tax deduction isn’t dependent on how much they sell the clothes for.

      What you paid for them is also not relevant. You base your tax deduction on their value at time of donation. The books you paid $1000 for may only be valued at $100 for tax purposes.

      I have frequently used a 3rd party program like ItsDeductible to gather info on what an item is worth. They have a lot of yearly information on the value of common items. On more esoteric items, I have used completed sales at ebay (or the like) or collectors sites to see what the things are actually selling for.

      YMMV.

    • Geekybiker says:

      You can deduct the thrift store value of them. Since you know that goodwill is selling them for, you have a pretty good idea of what you can deduct.

  11. grebby says:

    What’s the story on charity auctions? Assuming all the merchandise was donated, the donor gets a tax deduction, but the purchaser does not since they got something in exchange for their money?

    • juniper says:

      No, but each item up for auction has a FMV (Fair Market Value). If you bid above and beyond it, you can file a deduction for the amount above and beyond. If you pay less, you get no deduction.

      For example, you win a bouquet of flowers, with a bid of $450, with a FMV of $19. Your tax deductible donation amount is $431 ($450 – $19). Your friend bids $100 on a diamond necklace and wins, and the necklace has a FMV of $960. Your friend gets no deduction.

      As a bidder at a charity auction, it is your responsibility to look for, and if not found, ask for the FMV of any item you want to bid on. The charity will issue you a receipt but they may or may not do the math for you.

      • Bsamm09 says:

        I believe the FMV has to be made available prior to the auction:

        No part of a payment that a taxpayer makes to or for the use of an organization described in section 170(c) that is in consideration for (as defined in Section 1.170A-13(f)(6)) goods or services (as defined in Section 1.170A-13(f)(5)) is a contribution or gift within the meaning of section 170(c) unless the taxpayer–

        1) Intends to make a payment in an amount that exceeds the fair market value of the goods or services; and

        2) Makes a payment in an amount that exceeds the fair market value of the goods or services.

        • juniper says:

          Yes, indeed, the charity should make it available prior to bidding. But if you as the bidder can’t find it listed, you should ask. CYA, and all that.

  12. sj_user1 says:

    If you give money to a 3rd party, that is not a charity, who is collecting for a charity, the amount is not tax deductible.