Wendroff&Associates,LLC

Accounting Tips

How to Calculate Deductions for Charitable Donations

One of the best incentives the American government offers us to donate to charitable organizations—other than the good feeling you get from making a difference, of course—is the chance to take a deduction on our annual taxes for charitable donations.

However, knowing what qualifies and how to go about filing that deduction correctly can be confusing to the average taxpayer.

We at Wendroff & Associates are experts in the matter, and are happy to help you take advantage of those deductions legally and correctly, so that you don’t end up triggering an audit or incurring penalties. (One thing that can help: a non-cash contributions spreadsheet for you to keep track of what you donated and to what organization. Call us if you would like a copy.)

Below are some of the most frequently asked questions about how and what you can deduct from your taxes, including links to detailed information on the IRS website—but don’t hesitate to ask for our help if you feel it’s needed!

Can I deduct the value of my professional services if I donate time to a nonprofit organization?

Unfortunately, no. According to IRS Publication 526 on Charitable Contributions, you cannot deduct the value of your time. You also cannot take a deduction for income lost while volunteering for a nonprofit organization.

However, you can take tax deductions for unreimbursed, out-of-pocket expenses related to volunteering, such as uniforms, the cost of transportation in order to volunteer, supplies, and so forth. IRS Publication 526 has in-depth details on what qualifies as a deductible expense.

Can I deduct things donated to disaster relief?

Yes, you can deduct things that you donate to qualified organizations supporting disaster relief, such as the American Red Cross and others. However, you cannot deduct donations earmarked to a specific individual or family.

How do I go about deducting charitable contributions on my taxes?

You must file a Form 1040, and itemize each charitable donation in Schedule A of the form. IRS Publication 526 has a chart to help you figure out the value of donated goods such as clothes and food, according to “fair market value.”

What if I receive a gift or benefit as a result of a charitable donation?

If you receive something in return for a charitable donation, you can only deduct the amount of your donation minus the fair market value of the gift or benefit you received. Following are a few examples.

If you make a donation to a university’s athletic department and in return receive the right to purchase event tickets (but no tickets themselves), you may deduct 80 percent of the value of your donation. If you bid on something at a silent auction benefiting a nonprofit organization, such as a stay in a vacation home, you can only deduct a portion of your payment if the amount you paid is more than the fair market value of the usual cost of such a rental.

If you buy a ticket to a charitable event such as a concert or a dinner, you may deduct a portion of the ticket. For example, if you buy a $65 ticket to a charitable dinner at a church, you can deduct $40 of your payment – the amount of your ticket that is more than the cost of the benefit you are receiving (in this case, the food you are eating, which the IRS estimates is $25).

For more details, consult IRS Publication 526, or ask us at Wendroff & Associates!