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.
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