A common misconception people have about charitable contributions is that anything given to a not-for-profit counts as a deduction.
There are several ways this is wrong.
Is the Organization a 501(c)(3)?
Only donations to a 501(c)(3) organization are deductible as a charitable contribution.
For example, I have a client who is a coach on a community, semi-professional, not-for-profit sports team organized as a 501(c)(4). He doesn’t get paid for the work he does with the team. Plus, he kicks in a large amount of his own money on equipment, uniforms and other expenses related to the team.
None of the money or goods he donates are deductible as a charitable contribution because the team is not a 501(c)(3).
For businesses, a donation to an organization other than a 501(c)(3) might result in a business deduction but not a charitable deduction.
For example, the community sports team I mentioned above solicits local businesses for advertising in programs. A business can deduct that cost as an advertising expense, but it’s not a charitable deduction.
Your Time is Not Deductible
I’ve had many battles with business owners over this. If you donate your professional time or give a free job to a not-for-profit — even a 501(c)(3) — the value of your time IS NOT DEDUCTIBLE.
Did You Get Anything in Return?
Generally, if you receive something tangible in return for your donation to a 501(c)(3), the value of what you received is not a charitable deduction.
You donate $100 to Iowa Public Television. In exchange, you get a $10 coffee cup. Your actual charitable deduction is $90.
What about intangible benefits, such as feeling spiritually fulfilled after attending church? Can you still deduct 100% of your donations to your church? Yes, you can. The spiritual fulfillment received is intangible and thus the full amount donated is deductible.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”