Key Takeaways
- You can deduct the value of cash and property you contribute to qualifying a nonprofit school.
- If you donate property, you need to assess its fair market value on the date you make the donation.
- You are required to reduce the value of your contribution by the value of any gift or benefit you receive from the school in return for your contribution.
- To claim deductions for school donations, you need to itemize your deductions on Schedule A of Form 1040 rather than taking the Standard Deduction.
Charitable deductions
The Internal Revenue Code allows taxpayers to claim a deduction for donations they make to qualified organizations. A qualified organization includes most nonprofit schools that operate exclusively for educational and literary purposes. However, a donation may not be tax deductible if the school substantially engages in other activities unrelated to charitable, scientific, humanitarian or religious purposes.
Valuing your school donations
The IRS allows you to deduct the value of cash and property you contribute to a qualifying nonprofit school during the year. Contributions of property require you to assess its fair market value on the date you make the donation.
Various valuation methods are used, depending on the type of property. Although the IRS does not prescribe the methods, it warns taxpayers that the value has to accurately reflect the price that the property would sell for on the open market. For example, if you contribute used clothing to the school, the guidelines suggest you check with thrift shops in your area to determine what they charge for similar articles of clothing. You may also obtain the fair value by referencing various online resources for similar clothing in comparable condition.
TurboTax ItsDeductible Online can help you track your donations and calculate resale values for them.
TurboTax Tip:
For cash contributions of $250 or more, the IRS requires that you have written acknowledgement from the charity in order to deduct the donation on your tax return.
Benefits you receive from the school
The school may provide you with a gift or other benefit to acknowledge your generosity. You have to reduce the value of your contribution by the value of any gift or benefit you receive from the school. If the gift is a small token of appreciation with minimal value, you need not reduce your deduction. For example, receiving a plaque with your name on it has little value to anyone but you, so you would not be required to reduce your deduction, regardless of what the school paid for the plaque. However, if you receive a $100 gift certificate to a local restaurant, you'll need reduce the deduction by $100.
Recordkeeping and penalties
The Internal Revenue Code authorizes the IRS to assess penalties on taxpayers who overvalue charitable contributions. The penalty is 20 percent of the underpaid tax that results from a valuation that exceeds 150 percent of its true value. The penalty increases to 40 percent for valuations that exceed 200 percent.
Additionally, the IRS can disallow a deduction for failing to retain or submit proper documentation. All contributions, whether cash or property, require you to maintain a record with a description of the contribution, the organization receiving the donation, and if in cash, a bank statement, canceled check, or receipt. For cash contributions of $250 or more, the IRS requires that you have written acknowledgement from the charity in order to deduct the donation on your tax return.
Eligible taxpayers
Taxpayers have to claim deductions for school donations as well as other charitable contributions on Schedule A of Form 1040. Thus, the deduction is only available if you choose to itemize your deductions. An exception exists for 2020, when up to $300 in qualified cash contributions can be deducted if you take the Standard Deduction. This amount is increased to $600 in 2021 for those filing married filing jointly and taking the Standard Deduction. You should likely itemize if your itemized deductions are greater than the Standard Deduction for your filing status.
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