One of the most common questions CPAs get about charitable gifts is how they affect your taxes. Not all donations work the same way in regards to your taxes. When planning your 2016 donations you may want to consider some of the following criteria.
Tangible Personal Property- The property must be related to the charities tax-exempt function to allow you to deduct the items fair market value. An example of this would be donating religious materials to a church or school supplies to a school. When the item isn’t related to the charities tax-exempt status the deduction is limited to your basis. For example making a donation to an auction or a car wash.
Vehicles- If the vehicle isn’t being used by the charity you will only be able to deduct the amount the charity sells the vehicle for. If the charity is using the vehicle you will need to talk to an accountant about how much you can deduct for this contribution.
Services – The out of pocket expenses are deductible but the fair market value of the services is not. You can also deduct 14 cents per mile driven in relation to the donation.
Ordinary-income property – This category includes inventory, property that is subject to depreciation recapture and stocks and bonds held for one year or less. Generally speaking you may deduct the fair market value or your tax basis and the rule is it must be the lesser of these.
Long-term capital gains property- The fair market value of appreciated stocks and bonds that have been held for more than one year can be deducted from your taxes.
Cash- This does not apply to true cash donations but rather donations of money through check, credit card or payroll deductions. These donations can be deducted in full.
Use of Property – For instances, access to a rental or vacation home or loaning of artwork or other items of value. These typically do not receive a deduction because the item is not truly gifted.
It is important that you talk to your accountant about the limitations on your annual charitable donation deductions. Deductions can be limited because of income-based limits. There are other reductions and factors that affect how deductions will work with your taxes. To fully understand your personal taxes working with a CPA is a great idea. Learning how to maximized your deductions including charitable ones is a complex process which is best trusted to a professional.
