How to Deduct Church Donations
The Hartford Institute for Religious Research estimates that there are 335,000 religious organizations in the United States. They are exempt from the tax laws that govern businesses and individuals, and are financially supported by donations. The Internal Revenue Service allows you to deduct certain contributions from your taxes if you itemize your deductions.
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Instructions
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How to Deduct Church Donations
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Determine if your church is a qualified, 501(c)(3) nonprofit. Only contributions to qualified religious organizations will be deductible. Your church will be able to advise you of its tax status.
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Keep records of cash contributions. The Internal Revenue Service uses the term "cash donation" to classify contributions that are similar to cash. This includes donations made by cash, check, credit card, electronic funds transfer, debit card and payroll deduction. When making a cash contribution keep records showing the name of the organization, date of donation and the amount. Suitable records include canceled checks, credit card statements and bank statements. You may also obtain a receipt from the organization with its name, date of donation and the amount. For payroll deductions, suitable record sources are pledge cards from the church, a W-2 form, pay stubs or a document from your employer.
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Determine the fair market value of an item when donating noncash property to your church. No single formula exists for calculating the fair market value, however there are several things to consider: cost of the item, sale price of comparable items, replacement cost and an expert opinion. Items must be in good condition and any item for which you claim a deduction of $500 or more requires an appraisal.
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Keep records for noncash donations. Record the following information for each contribution: name of the organization, date and location of the donation, short description of item, fair market value and original cost (or basis). Donations of items with a fair market value of $250 or more will require additional records.
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Be sure your total deductions fall within IRS limits. The general limit for charitable contribution deductions is 50 percent of your adjusted gross income. In some cases a limit of 20 percent or 30 percent applies.
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Tips & Warnings
Additional records are necessary cash donations of $500 or more. Consult a tax professional or Internal Revenue Service publications to ensure that you have obtained the proper records.
Penalties exist if you claim a higher deduction than allowed. For example, if you overstate the value of a donated item, you may be penalized 20 percent to 40 percent of the underpaid amount of tax.
Charitable contributions can only be deducted if you are itemizing deductions. If you choose to take the standard deduction, your donations will not be subtracted from taxable income. Contact a tax professional or the Internal Revenue Service to determine the method that will be most advantageous for you.
Entry fees for a contest such as a raffle or lottery cannot be deducted.
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