Year-end charitable contributions and taxes

Mary Beth Harrington, CVA

The end of the year is near, so one last opportunity to contribute to your favorite nonprofits. Did you know that donating to a 501(c)(3) – (not necessarily any of the other 501s) might entitle you to a tax deduction? If so, are you aware of the rules for this?

According to the IRS, taxpayers who give money or goods to a charity may be able to claim a deduction on their federal tax return, which basically reduces the amount of their taxable income.

Of course, for most people, giving to charitable organizations is a matter of the heart, not the calculator.

Fewer taxpayers itemize their deductions since the 2017 tax law changes now provide for a higher standard deduction. Prior to these changes, approximately 30 percent of taxpayers itemized; in 2021, sources report that the percentage has dropped to about 11 percent.

To check the status of a charity, use the IRS Tax Exempt Organization Search tool. https://apps.irs.gov/app/eos/

What you need to know

• Qualified charities. To receive a deduction, taxpayers must donate to a qualified charity. Here are examples of things that taxpayers can’t deduct:
• Gifts to individuals
• Donations to political organizations and candidates
• Itemize deductions. To deduct donations, taxpayers must file Form 1040 and itemize deductions using Schedule A.
• Benefit in return. Taxpayers can only deduct the amount of their donation that exceeds the fair market value of the benefit received. If taxpayers get something in return for their donation (like merchandise, meals, and tickets to events), they may have to reduce their deduction.
• Property donation. If taxpayers give property instead of cash, they can normally only deduct the item’s fair market value. Fair market value is generally the price they’d get for the property on the open market. Used clothing and household items donated must generally be in good condition or better. Special rules apply to cars, boats, and other types of property donations.
• Form to File. Taxpayers file Form 8283 for all non-cash gifts totaling more than $500 for the year.
• Proof of Donation. If taxpayers donated cash or goods of $250 or more, they must have a written statement from the charity. The statement must show:
• Amount of the donation.
• Description of any property given.
• Whether the donor received any goods or services in exchange for the gift.

A note about fiscal sponsorship

Some legitimate nonprofits don’t – or don’t yet – have their 501(c)(3) determination from the IRS but can receive contributions that are tax-deductible to donors. How? They have a “fiscal sponsorship” arrangement with another nonprofit that is a 501(c)(3) organization. This kind of arrangement, which has been used since the 1980s, enables such groups to direct grants and donations to their fiscal sponsor, which disburses funds to them.

You might not be surprised to learn that one of my favorite local nonprofit organizations is The JOLT News Organization. Like all nonprofits, it was established first as a Washington-state nonprofit. It is currently waiting for the IRS to send its 501(c)(3) determination letter … any day.

In the meantime, since July 2021, it has been fiscally sponsored by a well-established local nonprofit, the Thurston Center for Business & Innovation (CB&I), housed at the Thurston Economic Development Council. Nearly everyone’s contribution to The JOLT last year and this year – including my own – actually went to the CB&I, which will forward funds next month. This includes every donation made by pushing the red DONATE button on this website’s menu.

There are several other local fiscally sponsored projects and organizations. To check the legitimacy of fiscally sponsored nonprofits or projects, check out the fiscal sponsor.

Tax documentation

Nonprofits want you to continue to donate to them. So in most cases, they will provide you with the necessary proof of donation either at the time of the donation or at the beginning of the year when other tax documents are due. However, if you have any questions, ask the organization before making the donation.

I hope the last few days of 2022 are wonderful and look forward to seeing you in 2023.

Soliciting your ideas

If you know of a nonprofit that is doing something great, celebrating a success, needs some outstanding volunteers, or hosting an event, let me know! This column (aside from a little education) celebrates nonprofits!

Mary Beth Harrington, CVA (Certified Volunteer Administrator) lives in Tumwater. She travels the country speaking at conferences and to individual organizations articulating issues facing nonprofits. Send your ideas to her at  MaryBeth@theJOLTnews.com