How Do Donations to 501(C)3 Work in Taxes?

by Leslie McClintock

    The term 501(c)(3) refers to the section in the Internal Revenue Code that defines tax-exempt entities and organizations. The federal government wants to encourage donations to organizations that promoted community service, education, historical preservation, charity and most forms of religious organizations also qualify under this code. Generally, the IRS lets you deduct amounts you contribute to tax-exempt organizations.

    If you want to claim a deduction for charitable contributions, you must use the IRS Form 1040, accompanied by a Schedule A, Miscellaneous Itemized Deductions. You cannot use IRS form 1040 EZ or the 1040A and claim a deduction for charitable contributions.

    If you donate property or stock to a charity, you cannot normally deduct what it costs you to buy. Instead, you must base your deduction on the fair market value of the property at the time of the donation. You must keep a bank record or other suitable record of any donations exceeding $250.

    The IRS imposes special rules on donations of vehicles. For donations of cars with a fair market value of less than $500, you can claim the fair value as your deduction. If the charity sells the vehicle for more, they will send you an IRS Form 1098 C, which will list the actual fair market value of the car, as determined by the sale. This is the amount you may claim as a tax deduction.

    You cannot deduct any contributions to specific individuals, political campaigns or lobbying groups. Note that a charity could potentially lose its 501(c)(3) status either for failing to file required documents with the IRS, or by becoming a political advocacy organization in violation of the 501(c)(3) code. In addition, you cannot deduct the value of your personal time or services donated. If you receive a benefit from your contribution, such as tickets to a concert or sporting event, you must subtract the fair market value of the benefit you receive from your deduction.

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    About the Author

    Leslie McClintock has been writing professionally since 2001. She has been published in "Wealth and Retirement Planner," "Senior Market Advisor," "The Annuity Selling Guide," and many other outlets. A licensed life and health insurance agent, McClintock holds a B.A. from the University of Southern California.

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