Tax Advantages of Giving to a Not for Profit Organization
Not-for-profit organizations provide valuable services to its clients, from providing the homeless with a warm place in which to sleep at night to offering relief services to communities struck by natural disasters. According to the Center for Civic Partnerships, between 80% and 95% of donations received by nonprofits come from individuals. Individual donors not only represent the backbone of charitable giving, they can also reap numerous benefits themselves via tax deductions on their donations.
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Cash contributions mean a dollar-for-dollar deduction on your tax forms, but certain restrictions do apply. The nonprofit to which you made the donation must be a registered 501(c)(3) organization with the Internal Revenue Service (IRS). You can find out the tax status of a nonprofit by requesting a copy of their 501(c)(3) letter or checking watchdog organizations such as CharityNavigator.org or Guidestar.org. In addition, make sure that you request a receipt from the nonprofit with the amount of the donated listed on the paperwork. If you donated more than $250 to one nonprofit within the tax year, you'll need written acknowledgement from the agency; if it's under that amount, a canceled check will suffice for IRS purposes.
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Non-cash--otherwise known as in-kind contributions--include donations of items such as office supplies, computers, software, telephones, vehicles, and office furniture. If the total value of your non-cash contributions exceeds $500, you may be eligible for a tax deduction. You'll need to file Form 8283 (Non-Cash Charitable Contributions) when you submit your tax returns.
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If you donated used items such as clothing and furniture to charities that dispense supplies to their clients, such as Goodwill and the Salvation Army, the items must be in good condition in order to qualify for a tax deduction. When you make these donations, ask for a receipt from the nonprofit. You--not the nonprofit--will need to itemize the donation and provide an estimated market value of each. Scout out similar items at secondhand stores to determine fair market values of your donations.
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Volunteering your time at a nonprofit won't net you a tax deduction, but you can claim deductions on any out-of-pocket expenses you accrue as you perform your volunteer service. For example, if you use your vehicle to transport patients to their doctor's appointments on behalf of a nonprofit veterans' health organization, you can deduct your mileage per IRS guidelines. If you perform pro bono work, you can't deduct the cost of your professional fees, but you can deduct the cost of any supplies or equipment you purchase to do the project.
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Note that your cash or in-kind deductions are limited to 50% of your AGI. Depending on the nature of the gift and the type of organization you give it to, it may even be as low as 20% to 30%. Consult IRS Publication 526 for more detailed information, or discuss with a qualified tax professional. In addition, your tax deduction is not a dollar-for-dollar tax credit and is instead dependent on your income tax bracket.
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