Need a Deduction? How About a Charitable Contribution?
By: Jon Kaull, Former Rape Crisis Center Board Member and Fundraising Committee Chairperson

As supporters of The Rape Crisis Center, you probably already know that you can take an income tax deduction for a gift to charities like the RCC. These tax deductions can be achieved, though, only if you meet various requirements including substantiation requirements, percentage limitations, and other restrictions.

First, the basics: Charitable contributions can reduce your income tax burden only if you itemize your deductions. Itemized deductions include charitable contributions, real estate taxes, mortgage interest, state taxes, and other deductions. The total of these deductions must exceed your Standard Deduction, which is established by the Internal Revenue Service based on your filing status. If you determine that your itemized deductions will exceed your standard deduction, then it is beneficial to itemize your deductions.

The following examples illustrate the preceding paragraph:

Example 1:
Mary Taxpayer is single and made the following payments in 2001:

Mortgage Interest paid on her home $3,000
Charitable Contribution to the Rape Crisis Center $1,000
Real Estate Taxes Paid $3,000
Taxes paid to Wisconsin reported on Form W-2 $2,000
Total $9,000

The 2001 Standard Deduction for a single taxpayer in 2001 is $4,400. Since the $9,000 of itemized deductions exceeds the $4,400 Standard Deduction, it is beneficial for Mary to itemize her deductions. Any additional gifts to charity that Mary makes will yield a tax deduction.

Example 2:
Joe Taxpayer is single and made the following payments in 2001:

Mortgage Interest paid on his home $1,000
Charitable Contribution to the Rape Crisis Center $1,000
Real Estate Taxes Paid $1,000
Taxes paid to Wisconsin reported on Form W-2 $1,000
Total $4,000

Since the $4,000 of itemized deductions does not exceed the $4,400 Standard Deduction, Joe would take the Standard Deduction. Any additional gifts to charity up to $400 that Joe makes will not yield an additional tax deduction. Any additional amounts beyond $400 would yield a tax deduction because his itemized deductions would then exceed his standard deduction.

If you have determined that itemizing is beneficial, the amount of your savings will vary depending on your tax bracket and will be greater for contributions that are also deductible for state income tax purposes. To get a current deduction, the contributions must be to a qualified organization and must not exceed certain percentage limitations (generally 50 percent or 30 percent of Adjusted Gross Income depending on the type of property contributed).

The substantiation rules will affect many charitable contributions. While a canceled check or receipt normally is all you need, you cannot deduct a gift of $250 or more unless it is substantiated by a written acknowledgment from the charity. Appraisals may also be required for some large gifts of property other than cash.



What about services rendered to a charity?
The value of the services is not deductible, but unreimbursed out-of-pocket expenses (mileage, meals, parking, etc.) that you incur while performing these services are deductible.

What if you get a benefit in return from the charity in exchange for making the contribution?
Generally, your deduction will be reduced by the value of the benefit unless the item is considered to be insubstantial in relation to your contribution. For example, if you make a $100 contribution to play in a charity golf tournament but the value of the benefit received (greens fees, cart rental, food, etc.) is $40, only $60 would be deductible as a charitable contribution.

A gift of appreciated property is a great way to receive a tax deduction. Say for example you bought 100 shares of XYZ stock 5 years ago for $1,000. The value of the stock now is $10,000. If you sold the stock you would have to pay tax on the $9,000 of gain. But if you donated the stock to charity, you would receive a tax deduction for the entire $10,000, and would not have to pay any tax on the gain. So, if you are considering disposing of stock that has appreciated, you may want to consider contributing the stock to a charity as a way to minimize your tax burden.

Charitable contributions are a great way to help your favorite charity continue or expand the services they provide to the community. And with proper planning, the contributions can lower your tax burden as well.

Jon Kaull is a Senior Tax Accountant at Grant Thornton LLP in Madison. If you have questions related to this article or any other tax related questions, feel free to contact him at 257-6761.